The year of jobs and housing
With the houses as collateral, banks would willingly push unaffordable large properties on people
The Prime Minister has promised that 2020 will be the year of jobs and housing for the poor, while indirectly blaming his predecessors for his failure to deliver on this election promise earlier. “Before this, the government system was slow, but now we have taken off... 2020 will be the year of jobs, housing and [economic] growth,” PM Imran Khan announced at a ceremony relating to the Rs5 billion Prime Minister’s Low-Cost Housing Scheme.
Imran promised to reverse many of the austerity measures his government pushed upon the public after government revenues increased. While his words suggest he believes that will be this year, economists have been less optimistic. He also said the government is working on a foreclosure law to help increase banks’ interest in offering mortgages and other forms of house financing. While he rightly noted that Pakistan has one of the lowest rates of use of housing financing, his reasoning was flawed. But while he cited banks’ fears of loans going bust, he has never been critical of the banks’ bad lending practices. He also never seems to bring up their failure to do due diligence while offering loans, even to ‘corrupt politicians’.
The truth is banks in Pakistan have offered loans to just about anybody without examining their means to repay them. This was especially true of car loans. Thousands of people were bankrupted by expensive loans that they couldn’t afford, but bankers and car dealers convinced them they could. When they ran out of money, the banks repossessed their cars and resold them. Under such circumstances, letting banks repossess people’s homes would be a recipe for disaster. With the houses as collateral, banks would willingly push unaffordable large properties on people, knowing that once the loans fail, they can resell the assets and keep the entire amount.
While this may not apply to the government’s interest-free loan scheme for the poor, the population at risk is the middle class, which is more desperate than ever to own housing, especially with rents going through the roof.
Published in The Express Tribune, March 6th, 2020.
Imran promised to reverse many of the austerity measures his government pushed upon the public after government revenues increased. While his words suggest he believes that will be this year, economists have been less optimistic. He also said the government is working on a foreclosure law to help increase banks’ interest in offering mortgages and other forms of house financing. While he rightly noted that Pakistan has one of the lowest rates of use of housing financing, his reasoning was flawed. But while he cited banks’ fears of loans going bust, he has never been critical of the banks’ bad lending practices. He also never seems to bring up their failure to do due diligence while offering loans, even to ‘corrupt politicians’.
The truth is banks in Pakistan have offered loans to just about anybody without examining their means to repay them. This was especially true of car loans. Thousands of people were bankrupted by expensive loans that they couldn’t afford, but bankers and car dealers convinced them they could. When they ran out of money, the banks repossessed their cars and resold them. Under such circumstances, letting banks repossess people’s homes would be a recipe for disaster. With the houses as collateral, banks would willingly push unaffordable large properties on people, knowing that once the loans fail, they can resell the assets and keep the entire amount.
While this may not apply to the government’s interest-free loan scheme for the poor, the population at risk is the middle class, which is more desperate than ever to own housing, especially with rents going through the roof.
Published in The Express Tribune, March 6th, 2020.