ISLAMABAD: The mortgage finance market in Pakistan remains critically underdeveloped whereas the supply of housing for low-income groups in the country remains negligible despite high demand, the International Finance Corporation (IFC) of the World Bank Group has said in a study.

The study called “Pakistan Housing Finance — Is There a Business Case for Financial Institutions” has gone on to state that despite the acute demand for housing, the mortgage depth ratio — the total volume of outstanding mortgages to GDP — remains low at 0.3 per cent, significantly lower than the South Asia average of 3.4pc.

This reflects the lack of housing finance products, the limited capacities of financial institutions, the lack of long-term funding, and legal and regulatory issues, according to the study.

The IFC undertook the study to underline the volume in mortgage finance market that could be tapped by expanding portfolios across different income segments in small, medium and large cities.

Most of the housing supply targets the high and affluent class in line with commercial viability and affordability. Only 1pc of housing supply caters to 68pc of the population earning a monthly income of up to $188. About 56pc of housing units cater to 12pc of the population earning monthly income of more than $625, the study notes.

Pakistan’s housing supply across all tiers and locations in 26 focused cities is above $18,000 on average. A supply of affordable housing units or apartments (up to 125 square yards) is as critical as affordable mortgage financing. Without adequate affordable housing supply, a ‘housing for all’ agenda could be difficult to achieve.

“IFC’s study highlights the need to open up housing financing for different customer segments in Pakistan, which is a critical component of the country’s Covid-19 response and recovery. Spurring private sector participation in mortgage finance is also vital to create a new market to boost competitiveness, growth and inclusion,” said IFC Regional Head of Operations for Afghanistan and Pakistan Shabana Khawar.

With a growing population of over 208 million people, Pakistan is in urgent need of new housing. Its estimated housing shortage stands at about 10m homes and is expected to grow by 400,000 units per year. Increasing urbanisation, continued rises in the cost of land and construction materials, and low levels of mortgage lending have also all contributed to the country’s housing gap.

The study says housing finance has the potential to expand in Pakistan and with the appropriate products, systems, and funding, mortgage finance can be expanded to 26 cities, with the potential to reach about 500,000 additional clients across different income segments.

An additional loan volume of $3.8 billion can be created in the mortgage finance market by existing and new housing finance players, to serve about 500,000 customers, study estimates.

The Pakistan government is currently providing a mark-up subsidy for housing finance whereby housing units of up to 250 square yards and flats or apartments with covered areas of up to 2,000 square feet are being financed by the FIs for first time home-owners. The finance carries a subsidised pricing of up to 9pc per annum for a maximum tenor of 10 years and a maximum loan size of $62,500.

The markup subsidy scheme is complemented by provision of low-cost housing to low-income groups by ‘Naya Pakistan Housing and Development Authority’ (NAPH­­DA), where housing finance is available from financial institutions for a maximum amount of $16,875 for a unit of up to 125 square yards and flat or apartment with a covered area of up to 850 square feet.

Published in Dawn, September 29th, 2021