Towards affordable housing
It is time for govt to create the an environment where entrepreneurs think of investing in affordable housing schemes
The writer served as Executive Editor of The Express Tribune from 2009 to 2014
With some sanity being proposed to be introduced into the real estate market, it is time for the government to pay due attention to creating the right kind of enabling environment for entrepreneurs to think of investing in affordable housing schemes. There is said to be a backlog of about ten million housing units of which around 3.5 to 4 million are said to be in the urban region and most for low-income groups. However, since only 300,000 housing units are being built annually, the backlog continues to bulge. That is perhaps why 68 per cent of Pakistan’s population has only one per cent of total housing stocks, whereas 56 per cent of housing stock is meant for 12 per cent of the upper income segments.
Katchi abadis and shanty towns are said to have sprouted all over our cities to serve those who fail to find an affordable shelter in the cities and towns as the demand for housing continues to expand while the supply remains too far behind. Indeed, there is said to be a huge untapped market and unmet demand for affordable housing units in the urban areas particularly for the low and lower-middle income segments.
Despite the huge demand for housing, the overall contribution of housing finance is very low — less than one percent of the GDP. The stakeholders argue that multiple risks impact the performance of the housing finance sector. Lack of transparency in property markets is said to be a key constraint. Despite the ample potential of business and social need of housing, the highly challenging business environment usually prevents international investors, local businessmen and even ordinary people to save and invest in housing enterprises.
The market has been unable to meet the growing demand to supply housing stock at affordable prices. An individual earning between Rs20,000 to 25,000 per month (working in the public/private sector or self-employed) and responsible for maintaining his/her nuclear family as well as members of the extended family would save (after all expenses relating to rent, food, utilities, transportation and miscellaneous are deducted) no more than Rs1,500. With the average person saving Rs1,500 and the average 80 square yard plot costing Rs700,000, it would take nearly 40 years before one could afford such a plot. The result is the current housing crisis Pakistan is faced with.
To start with the government could reform the House Building Finance Corporation (HBFC) to provide a mechanism allowing potential purchasers who have an income to save for and eventually purchase a housing unit. The HBFC could also include a subsidised savings programme linked to a retirement account, subsidised mortgage rates and price discounts.
At the same time the government could also launch a Public-Private Partnership scheme for development of public properties and identified green technologies and materials suitable for lower-income households. A WB loan of US$300 million has been granted to the Arab Republic of Egypt to develop an Affordable Mortgage Finance Programme. The programme creates a transparent and economically efficient subsidy for the broad low- and middle-income market and a credible legal and regulatory framework for the mortgage finance market.
The Government of Pakistan can also consider the following for establishing the enabling environment for making affordable housing a reality: a) Changes to the law to allow banks to hold Consumer Housing Assets on their books; b) Changes to the laws to allow Consortium Financing for large-scale Residential Compounds on State released land at provincial level; c) Issuance of Housing Sukuk, with participation by owners of houses of large-scale housing projects financed under Islamic Banking; d) Introduction of new construction technologies on duty-free import basis and; e) Involving Microfinance & SME Banks to provide funding to low-income borrowers, by releasing targeted funding through the State Bank.
Also, the government could document all land available in the public and private sectors, digitise the documentation rendering ownership beyond an iota of doubt thus making it bankable so that land owners using the house-to-be-built as a collateral borrow from the HBFC at concessional rates repayable over 40 years in easy instalments.
Published in The Express Tribune, July 23rd, 2016.
Katchi abadis and shanty towns are said to have sprouted all over our cities to serve those who fail to find an affordable shelter in the cities and towns as the demand for housing continues to expand while the supply remains too far behind. Indeed, there is said to be a huge untapped market and unmet demand for affordable housing units in the urban areas particularly for the low and lower-middle income segments.
Despite the huge demand for housing, the overall contribution of housing finance is very low — less than one percent of the GDP. The stakeholders argue that multiple risks impact the performance of the housing finance sector. Lack of transparency in property markets is said to be a key constraint. Despite the ample potential of business and social need of housing, the highly challenging business environment usually prevents international investors, local businessmen and even ordinary people to save and invest in housing enterprises.
The market has been unable to meet the growing demand to supply housing stock at affordable prices. An individual earning between Rs20,000 to 25,000 per month (working in the public/private sector or self-employed) and responsible for maintaining his/her nuclear family as well as members of the extended family would save (after all expenses relating to rent, food, utilities, transportation and miscellaneous are deducted) no more than Rs1,500. With the average person saving Rs1,500 and the average 80 square yard plot costing Rs700,000, it would take nearly 40 years before one could afford such a plot. The result is the current housing crisis Pakistan is faced with.
To start with the government could reform the House Building Finance Corporation (HBFC) to provide a mechanism allowing potential purchasers who have an income to save for and eventually purchase a housing unit. The HBFC could also include a subsidised savings programme linked to a retirement account, subsidised mortgage rates and price discounts.
At the same time the government could also launch a Public-Private Partnership scheme for development of public properties and identified green technologies and materials suitable for lower-income households. A WB loan of US$300 million has been granted to the Arab Republic of Egypt to develop an Affordable Mortgage Finance Programme. The programme creates a transparent and economically efficient subsidy for the broad low- and middle-income market and a credible legal and regulatory framework for the mortgage finance market.
The Government of Pakistan can also consider the following for establishing the enabling environment for making affordable housing a reality: a) Changes to the law to allow banks to hold Consumer Housing Assets on their books; b) Changes to the laws to allow Consortium Financing for large-scale Residential Compounds on State released land at provincial level; c) Issuance of Housing Sukuk, with participation by owners of houses of large-scale housing projects financed under Islamic Banking; d) Introduction of new construction technologies on duty-free import basis and; e) Involving Microfinance & SME Banks to provide funding to low-income borrowers, by releasing targeted funding through the State Bank.
Also, the government could document all land available in the public and private sectors, digitise the documentation rendering ownership beyond an iota of doubt thus making it bankable so that land owners using the house-to-be-built as a collateral borrow from the HBFC at concessional rates repayable over 40 years in easy instalments.
Published in The Express Tribune, July 23rd, 2016.