KARACHI, Aug 26: Though uncertainty on the political and economic fronts has slashed real estate prices, inflated lending rates of banks have put a cork on housing loans.

Bankers said a decline in property prices could be beneficial for the people who witnessed a sharp increase in real estate prices during the last four years. However, inflation hovering around 24 per cent forced banks to adopt a cautious approach.

“It means banks do not encourage housing loans, as higher lending rates above 20 per cent can produce a serious default problem for the banking sector,” said a senior banker.

Despite the fact that commercial banks entered the housing sector and grabbed a significant share of the market, the trend started declining since 2007.

According to official data, growth in the housing loans for the fiscal 2004 was 24.8 per cent which increased to 56 per cent in 2005, but it dropped to 38.2 per cent in 2006 and further slipped to 27.7 per cent in fiscal 2007.

“We believe the fiscal year 2008 which ended on June 30, will show a more depressive picture as banks do not want to take risk with a very high inflation and interest rates,” said the banker.

Abid Naeem, a builder, said banks have made it difficult to lend for the housing sector and once again the House Building Finance Corporation was taking major burden of the construction industry.

The entry of commercial banks in the housing sector had reduced the market share of the HBFC. It was 89.5pc in 2002-03, but reduced to 34.2pc by FY07.

“But the year 2008 proved worst for the housing sector and the share of commercial banks fell sharply against the last year’s housing loans,” said Naeem.

“We cannot blame banks alone as the entire economy is under stress and has been facing a long period of uncertainty encircling almost one year,” said Naeem.

He was of the view that under uncertain political and economic situation, investors preferred to remain liquid while many sold their fixed assets to avoid losses.

The mortgage loan is the lowest in Pakistan as compared to the regional ratios of mortgage loans with the Gross Domestic Product (GDP).

The mortgage lending which is just one per cent of the GDP is even lower than India where mortgage lending is three per cent of the GDP.

The housing loans are still much lower than the requirement. The official data shows that each year the country needs about half a million houses while the deficit is more than six million houses.

The newly elected government has plans to start housing projects for low-income groups and involve banks along with the HBFC to boost this sector.

The sector has been a prime subject for previous governments of Nawaz Sharif, Benazir Bhutto and then Shaukat Aziz. However, no government could move the wheels of the sector which carries 42 allied sectors with it.

“The current fiscal year started with the worst scenario of 24 per cent inflation. It will not allow private sector to flourish,” said a senior banker.

He said the only way to move this sector is that the government protect the projects from land mafia and provides land at lowest prices.