Owning a house: a dream unfulfilled

26 May 2014

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Housing stock can be significantly increased if public servants are encouraged to build their houses by providing them cheap loans at 4pc per annum.
Housing stock can be significantly increased if public servants are encouraged to build their houses by providing them cheap loans at 4pc per annum.

OWNING a home is becoming difficult for most people nowadays. The price of land and the cost of construction have touched exorbitant heights, so much so that building or buying a house has now become impossible even for the middle class professionals.

The mortgage market is underdeveloped, as there is only one specialised institution for housing finance — the House Building Finance Company. Besides this, a few commercial banks provide mortgage loans.

The country’s low housing finance-to-GDP ratio of below 1pc compares poorly with 7pc in India, 25pc in Malaysia, and 50-70pc in developed countries.

International experience shows that the revival of the housing sector hinges on government support. The government can facilitate citizens to build or buy houses in many innovative ways. These include building low-cost housing units backed access to cheap credit and tax incentives to house- buyers/builders, and liberal credit allocation.

It needs also to streamline the legal environment for enforcing contracts between financial institutions and their borrowers through quick adjudication of cases.


Building low-cost housing units supported by tax incentives and cheap credit to house buyers/builders and liberal credit allocation are some of the ways through which the government can provide an impetus to the housing sector


Besides the lack of adequate housing finance and other facilities in all big metropolitan areas, particularly Karachi, activities of the land mafia also go uncheck. Hapless plot owners have to run from pillar to post to get their lands vacated from the land mafia.

Other impediments include the non-availability of utilities, particularly electricity, for dwellers in new societies. K-Electric demands huge bank guarantees for providing electric connections to the new projects.

As the role of the government in enabling the people to build their houses is very critical, useful lessons can be learnt from Thailand. The Thai government has broadened the access of poor people — whose access to finance is severely restricted as they are perceived as high-risk and have no valuable assets to pledge as collateral — to credit through a hire purchase programme.

Under this programme, people desirous of buying a property or flat are first required to pay installments for a period of five years, while the title remains with the National Housing Authority (NHA), Thailand. If they fail to pay the installments, the houses are seized by the NHA and sold to other prospective buyers.

In case of compliance, the hire purchase agreement is upgraded and the title is transferred to their name, and their status is changed from a hire purchaser to a mortgager. They receive long-term GH Bank mortgages (of not more than 390,000 Thai baht, or approximately Rs1 million) with a repayment period of up to 30 years.

Mortgage rates charged to the borrowers are lower than market rates, making housing purchases more affordable for the low-income group.

Similar ideas can be replicated in Pakistan for low-income, working class people, who have an average disposable monthly income ranging from Rs10,000 to Rs20,000 per month. As this group spends about 40pc of its income on rent, it can be persuaded to spend such money to instead own their houses.

Similarly, government servants may be encouraged to build their own houses. Many countries focus on government servants as potential home buyers and provide them loans of up to 65 basic salaries for buying a house through banks, to be paid over 30 years in easy installments. Interest rates as low as 4pc are charged from them in countries like Malaysia and Singapore.

As opposed to this, government servants in Pakistan are being offered expensive projects with short repayment periods, as is evident from the prices of flats offered by the Federal Government Employees Housing Foundation, where the repayment period is just five to six years instead of 20-30 years, making it impossible for the government servants to pay the installments.

A better approach would have been to deduct a monthly amount from the salary and adjust the remaining amount from the GP Fund, so that the price of the housing unit can be recovered from the salary and retirement benefits. The housing stock can be significantly increased if public servants are encouraged to build their houses, by providing them cheap loans at 4pc per annum, as is being done in Malaysia.

It is time that the ministry of housing wake up, update the last housing policy — which is now 13 years old — and come up with some out-of-the-box solutions.

The writer is a development analyst and a US Fulbright Scholar 2005-07

Published in Dawn, Economic & Business, May 26th, 2014