PRIME Minister Imran Khan’s ambitious construction and house-building package offers generous investment incentives to wealthy developers and builders, as well as the well-off middle-class families but conveniently ignores low-cost, affordable housing needs of the low-middle-income families.

The initiative has twin objectives: one, to help lift the all-pervasive economic gloom and, two, somehow start delivering on the ruling PTI’s election promise of building 5 million affordable houses as its flagship Naya Pakistan Housing Programme launched in April 2019 struggles to take off.

The raft of lucrative policy, fiscal, and monetary measures announced to push-start construction and housing are expected to mostly facilitate real-estate developers/builders and investors to unlock their untaxed or illegal money stashed either in the form of cash/liquid assets or parked in real estate. The other major beneficiary of the package are owners of 5-marla and 10-marla plots of residential land interested in building their own home.

At best, the scheme will help the wealthy declare and unlock their investment stuck in land for the last couple of years because of the government’s documentation drive

The incentives — such as no-question-asked-on-source-of-income amnesty scheme on an investment made in the construction industry before the end of 2020, and several tax cuts and exemptions for real-estate developers and builders — announced in April this year for attracting investments in construction and housing have now been topped up with cash support of Rs300,000 each on the first 100,000 units in the price range of under Rs2.5m (this does not include the cost of land) and subsidised mortgage finance on construction 5-marla and 10-marla housing units. The mortgage subsidy will be available for five years at 5pc for 5-marla units and 7pc for 10-marla units.

Following up on the government housing policy, the State Bank of Pakistan (SBP) has announced a mandatory lending target for the banks equal to 5pc of their private sector credit, or around Rs300 billion, by the end of 2021 for housing and construction of buildings segments. This compares with the outstanding mortgage financing share of Rs257bn or 4pc of the private sector credit, which, according to a JS Research note, includes consumer housing finance of Rs83bn, bank employee housing loan of Rs111bn and construction of buildings loan of Rs63bn.

The incentives are expected by many to create a robust demand for housing over the next several months. But banks will likely remain uninterested in lending to non-corporate customers without a strong foreclosure law enabling them to swiftly recover loans without recourse to court and limiting borrowers’ right of appeal against foreclosure of a property. “This right of appeal should not be available to a defaulter unless they deposit at least 70-80 per cent of the amount outstanding against them,” a senior banker told this correspondent.

There also are other issues involved as pointed out by the SBP, which has urged the government to ensure computerisation of land records for the facilitation of clean title for bank lending, reduction in time taken in the registration of a title and creation and perfection of mortgages. Furthermore, the creation of a Real Estate Regulatory Authority is recommended to address bank concerns of ensuring adequate standards of developers and builders, and reduction in transaction costs related to property transfers in addition to passing a foreclosure law.

Housing and public works investment is a critical component of the PTI government’s post-Covid-19 economic recovery strategy. However, bankers and analysts remain sceptical of the scheme delivering tangible results like the construction of 100,000 units in the next one or two years for various reasons. “At best, the scheme will help the wealthy declare and unlock their investment stuck in land for the last couple of years because of the government’s document drive. Besides, the demand for housing at present is pretty low owing to the coronavirus-induced economic uncertainty and is unlikely to pick up any time soon,” the banker argued.

Pakistan’s housing shortage is currently estimated by the World Bank to be around 10m units, with about half in urban areas. Around 47pc urban households live in informal settlements with inadequate infrastructure and services. The backlog is estimated to rise by 300,000-350,000 units a year, or half of the new demand being created every year. “The formal housing supply that does exist is targeted towards the upper-income segments of the market. Central and provincial governments provide limited housing supply at moderate prices, mainly for government employees,” says a World Bank report.

Read: Affordable housing: an uphill virtuous task

A couple of builders we spoke with were unconvinced that the scheme could deliver housing for the low to middle-income groups as promised by the premier. In fact, they pointed out, this segment of the targeted population is not covered under it at all. “Even if we for a moment assume that the government will be able to dismantle all hurdles that have impeded the growth of a robust mortgage debt market and push-start the housing sector, the plan to provide affordable shelter to the low-middle-income group will remain a pipedream,” one of them said.

For starters, the entire scheme focuses on the provision of ‘standalone, independent’ units, which though may become ‘affordable’ for the affluent segments but do not fall in the category of ‘low-cost’ housing. “If the purpose is to create housing for all, we will have to go beyond this package and learn from countries like Singapore,” he added. Singapore has the highest rate of homeownership in the world with over 80pc of the population living in government-built housing.

“We need high-rise housing estates offering small 2-3 bed affordable units built on state-land to increase the supply to low-middle-income families to rent to those who cannot afford to buy or secure bank financing,” he suggested.

Such projects could be built either from public funds or initiated in public-private partnership financing model with the government providing land to investors who should be eligible to predefined profit on their investment. In order to make the model successful, he said, these housing estates should be equipped with education and health facilities along with playgrounds, community centres and local commercial areas, and the developer or a government agency be made responsible for its maintenance and upkeep.

Published in Dawn, The Business and Finance Weekly, July 20th, 2020