Housing for all remains a dream unfulfilled, chiefly due to the lack of a policy push and an excessive involvement of investment hoppers in the housing and real estate business.

The recent decision of the House Building Finance Company (HBFC) to go for increased financing of housing units for low and middle income groups may do little to correct the situation in the short term.

But if the decision is implemented, in letter and in spirit, coupled with other required measures, a large number of the homeless can get their own accommodations.

If the decision is implemented, in letter and in spirit, coupled with other required measures, a large number of the homeless can get their own accommodation

According to HBFC officials, the company will now provide finance on priority basis to those people who need up to Rs1.275m, though it will continue to lend larger sums of money as well.

The Association of Builders and Developers (ABAD), however, questions such priority lending and its chief alleges that the move is aimed at benefiting some politically connected NGOs involved in assisting homeless people.

Regardless of this controversy, given the ground realities, the HBFC decision is potentially a step in the right direction.

According to the State Bank of Pakistan, the backlog of housing units has exceeded 9m and 400,000 units are added to it every year. Back in 2005, the then government had come up with an ambitious ‘housing for all’ plan backed by a comprehensive policy framework to make it a reality. But like many other ambitious plans this too remained unexecuted.

One of the reasons for the failure of housing plans has been an over-reliance on the private sector, dominated by investment-hoppers, including the politically connected powerful and rich. ‘And that keeps our housing sector in the shape that we continue to see year after year’, says a senior executive of HBFC.

Whereas the government has long stopped constructing housing units for its employees, even the financing of loans by state-run institutions fall short of all expectations.

HBFC is the only public sector company that has a one-fourth share in housing finance, the remaining three-fourth being catered to banks and development finance institutions.

But formal financing (by HBFC and banks and DFIs) itself meets the requirements of a very small percentage of the overall demand.

Considering that there is a backlog of 9m housing units and assuming that the average cost of a building a house is around Rs1m, there is a financing backlog of Rs9tn! And, even if we take the estimated average cost of a housing unit at half a million rupees, the financing backlog in housing sector comes to Rs4.5tn. Compare this, to the entire stock of housing loans of all banks, DFIs and HBFC (Rs63bn at end-March 2016) and you get a really rude reality check.

Now, compare the annual housing loans of banks, DFIs and HFBC (Rs23.2bn between April 2015 and March 2016) with the amount that is needed to construct 400,000 housing units in a year (somewhere between Rs200bn-Rs400bn depending upon whether the cost of construction is taken as half a million rupees or Rs1m). Here, we are. Formal financing accounts for slightly over 5-10pc of the estimated fresh financing requirements of the housing sector!

Such a huge financing gap cannot be filled through conventional methods. There is clearly a need for an out-of-the-box approach. Financial agencies need to double up their efforts to lend aggressively.

Central bankers say the presence of a comprehensive set of guidelines for house finance has now made this easier. The federal and provincial governments should join hands with the private sector for the construction of large housing schemes for low and middle income groups.

Modalities for this can be worked out in coordination with builders, public sector entities and mortgage finance institutions.

Estimates differ on segment-wise shortage of housing units. But various studies done on this subject have one thing in common i.e. the housing sector is heavily skewed in favour of the upper middle class and the rich. Two studies, both conducted by the private sector, show that 50-68pc people in urban slum areas live in improper dwellings including shanty houses. Besides, 1pc of those who own large bungalows also own 12pc of the entire construction-covered area of Karachi.

“Such discrepancies can be removed if we can encourage more housing units through proper policies, maybe in the form of apartments, and at the same time discourage formal financing of too large and too big bungalows and town houses,” opines a housing finance executive of a large local bank.

The upward revision in valuation tables of the real estate in selected cities across the country and then an immediate downward revision in Sindh indicate that provincial and federal authorities have still not learnt to work in harmony even in the areas that are of utmost public interest, builders point out.

“In such an environment, we don’t expect formulation and more importantly strict execution of a national housing policy,” says a former chairman of ABAD. “But, I think ‘housing for all’ policies can be made and implemented initially by Sindh and Punjab with active involvement of banks.”

Published in Dawn, Business & Finance weekly, October 17th, 2016


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