Low-cost homes: dream or reality?

Updated 27 Oct 2020

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On October 12, the State Bank announced that for the first time all individuals who will be constructing or buying a new house can avail bank financing at subsidised and affordable markup rates. — Dawn/File
On October 12, the State Bank announced that for the first time all individuals who will be constructing or buying a new house can avail bank financing at subsidised and affordable markup rates. — Dawn/File

Responding to stakeholders’ concerns and difficult ground realities, policymakers are fine-tuning the house financing policy, shedding their unilateral approach as witnessed on issues such as the controversial Pakistan Islands Development Authority 2020.

And this approach to resolving problems in housing sector development is institutionalised. While reviewing the progress of the Naya Pakistan Housing Scheme, the National Coordination Committee on Housing, Construction and Development (NCCHCD ) has a mandate to identify impediments in the way of various initiatives and recommend/direct relevant authorities to take corrective measures for removing bottlenecks. The State Bank of Pakistan (SBP) is similarly adjusting its policies on the feedback it receives from economic agents and other concerned quarters.

Notwithstanding the deep-seated multiple challenges embedded in the current economic environment, prudent policies enjoying a consensus have a greater chance of success than arbitrary decisions in a complex situation.

It is in this background that a few new features have been added to the ‘low-cost housing’ financing policy earlier this month. On October 12, the State Bank announced that for the first time all individuals who will be constructing or buying a new house can avail bank financing at subsidised and affordable markup rates.

While the project was launched on a no-profit-no-loss basis, the prices of four categories of houses ranged from Rs4m-13m

The decision to make all individuals eligible for subsidised credit follows a media report that the high price of housing units in Pakistan Housing Authority project at Peshawar, has disappointed local eligible applicants including government employees. They complain that it is beyond their means to manage hefty down payments/instalments demanded by project managers.

While an official of the provincial government claimed that the project was launched on a no-profit-no-loss basis, the prices of four categories of houses in the project ranged from Rs4 million to Rs13m though they will be built in Surizai which is located on the barren southern fringe of the city with no inhabitants, and where the price of land is cheap.

A majority of those declared successful in balloting reportedly face an impossible task of making down payments ranging from Rs0.5m to Rs1m. The unsuccessful applicants lament that they have lost the Rs10,000 registration fee.

Making all individuals eligible for subsidised credit will dilute the prime minister’s vision of housing for low-income groups whose incomes and savings are being eroded because of high inflation and rising unemployment. Only the relatively affluent segment of the lower-middle class may benefit from the decision.

There has been much progress on paperwork on the PTI housing initiative but the actual construction work has yet to start to meet housing building targets as scheduled. This is indicated by the Association of Builders and Developers’ (ABAD) demand that the government extend the dates of availing incentive package of Naya Pakistan Housing Scheme till December 2021. It wants both the date of registration with the Federal Board of Revenue (FBR) for the tax incentive package and the period for completion housing projects to be extended.

Similarly, the impression that the growth in cement production by 24 per cent during July-August has been contributed by housing construction is not supported by falling production of other complementary inputs of house-building, says an independent economist. In the two-month period, he points out, the output of glass plates and sheets has dropped by 15pc, steel products by 13pc, paints and varnishes 11pc. The increase in wages of construction workers in the two months is less than a year-ago period when the sector was in a depressed state.

In a meeting of NCCHCD earlier this month, Prime Minister Imran Khan was informed that 112 companies and individuals have registered with FBR. These companies intend to start work on 123 housing and construction projects in the country. The FBR is also considering to appoint a focal person for Abad to resolve the tax-related issues.

The chief secretaries briefed the prime minister on the work in progress. Sindh chief secretary said No Objection Certificates (NOCs) have been issued for 75 projects. A committee that includes the representatives of the private sector has also been set for monitoring the projects.

In Punjab, the projects approved so far are stated to have an estimated cost of Rs84.5 billion. With a reasonable increase in the sale of cement, bricks and steel, the chief secretary Khyber Pakhtunkhwa reckons that the total investment in housing and construction in the province has reached Rs83bn. The number of housing projects under execution in the two PTI-run provinces was not given. Also, no reports came out of the meeting about housing projects in Balochistan, Azad Jammu and Gilgit Baltistan.

But the policymakers are vigorously persevering in their efforts to make the PTI’s housing initiative a success. Under a memorandum of understanding signed between the government of Pakistan (GOP) and the SBP, the proposed Rs33bn federal subsidy for housing finance will be provided with the bank’s administrative support as executing partner with the GOP and the Naya Pakistan Housing and Development Authority (NAPHDA). The markup facility will be available through all banks and for all three categories of housing units.

The SBP has also announced on October 7, a reward and punishment mechanism for generally reluctant banks to comply with its mandatory targets for the financing of house-building and construction. On July 15, the SBP had directed all banks to comply with the mandatory target of 5pc of their domestic private sector advances for housing and construction by December 31, 2021.

Without going into details, the SBP’s mechanism stipulates that Cash Reserve Requirements (CRR) to be maintained by banks with the central bank will be reduced for the next quarter by an amount equal to or more depending on the quantum of increase in financing of housing and construction of buildings against the target set for the quarter. If a bank fails to achieve the target, it will be required to maintain extra CRR by the amount short of the target.

Habib Bank President Muhammad Aurangzeb says the terms of the new facility will mitigate some of the concerns that banks have had about venturing into housing loans as SBP has also incorporated banks’ input in the lending policy. He acknowledged that NAPHDA also helps address banks’ concern around land titles.

According to Abad Chairman Fayyaz Ilyas, the government will provide land and infrastructure facilities to builders and developers to ensure the success of the housing scheme. However, the HBL chief pointed out that the banks’ concern about a foreclosure law remains in place.

Published in Dawn, The Business and Finance Weekly, October 26th, 2020