HOUSING finance is picking up following a demand uptick in major cities but still it is moving at a snail’s pace as the organised real estate sector is enormously under-served by the formal credit.

Long-standing issues remain unresolved to push up credit volumes for the housing sector to realise its potential strategic role in boosting economic growth.

In FY15, the gross outstanding amount of housing loans rose to Rs59.2bn with an additional fresh disbursement of Rs7.5bn. The stock of non-performing loans also decreased from Rs15.6bn in FY14 to Rs13.5bn in FY15 while about 21,000 new borrowers were sanctioned loans during the year.

But such improvements indicate only a symbolic growth in housing finance when seen in the backdrop of the need to clear the housing backlog and to meet full fresh demand.

“The core issue is not just achieving some growth in housing finance, the real problem is to accelerate it and maintain a very high growth rate in years to come,” says a former chairman of Pakistan Banks Association.

Constructing 0.6m new housing units a year just to meet fresh demand is a huge task. And if we add to it 0.5m units to clear the backlog in the next 20 years keeping in view a SBP-estimated backlog of 10m units, there is a need to build 1.1m units per year.

This means fresh loaning of no less than Rs300bn a year to meet only fresh demand (even if we assume that an average housing unit is built at a cost of just Rs0.5m). Thus at least Rs250bn a year is needed to gradually clear up the backlog.

“The core issue is not just achieving some growth in housing finance, the real problem is to accelerate it and maintain a very high growth rate in years to come

The mortgage refinance company (MRC) – window for housing refinance – to facilitate large-scale loaning to the construction industry. Bankers say the company might take some time to start working after incorporation at the Securities and Exchange Commission of Pakistan.

The creation of MRC follows the introduction of a separate set of prudential regulations for housing finance. Legal framework for foreclosure, transfer tenancy and rent controls are being updated in Punjab and Sindh, but the pace is very slow; land records computerisation has made progress in Punjab but not so much in Sindh.

The establishment of an integrated country-wide computerised land registration system is important to have clear, transparent land titles and valuation.

“Land values, first shown on paper,are very low for the benefit of the sellers many of whom are part of a very powerful nexus of influential builders and politicians and then builders come to us demanding very large loans against them,” complains a top official of the House Building Finance Company. “All sorts of pressurising techniques are used. But how the company can finance such building projects”?

Officials of the Association of Builders and Developers (Abad) say, “ the HBFC caters to their financing needs, but banks are very choosy. Their target market seems to be individuals who need money to purchase or construct/renovate bungalows and are willing to pay high mark-up.”

The launching of the Bahria Town housing scheme in Karachi has lately changed the dynamics of mortgage financing. “Though the scheme hasn’t impacted on high-rise residential projects, one particular class of crowd investors, who used to pool in money for booking apartments, are now trading files of plots at Bahria scheme,” says an Abad office-bearer.

In the past four years, at least 300 plus apartment projects have come up in Sindh, most of them in Karachi, and according to a senior Abad official Asif Sumsum, 200 more projects would be launched by 2017.

But whereas restoration of peace and order in Karachi is facilitating growth of such projects, shortage of utilities remains a big problem.

Officials of the utility companies complain that builders conceal key facts while applying for water, gas and electricity connections that render housing schemes under-served in utilities.

Published in Dawn, Business & Finance weekly, April 18th, 2016