KARACHI, Sept 14: Housing is an area where people can make investments without much of professional knowledge and expertise required in risky stock trading.

Investment in housing also does not suffer as much from volatility as stock prices though it has its own cyclic boom and bursts. In times of slump, the construction industry is even encouraged to stimulate economic activity.

No comparison of investment and returns from property and stocks is available for Pakistan. In a period of slack construction activity, builders reckon that household investment in property yields a return of 10-15 per annum. In the US, the estimates range from 15-25 per cent.

However, the situation is now changing. Home remittances are reported to have revived interest in property. And estate agents claim that prices are going up in some localities in Karachi. The returns on investment may improve.

Worldwide, more household wealth is tied in property than in the stocks. This includes the United States where 50 per cent of the population has investments in shares. The US has GDP of eight trillion dollars against market capitalization of ten trillion dollars. Pakistan’s GDP is $60-65 billion against market capitalization of six billion dollars.

According to 1998 Population and Housing Census, there were 19.3 million housing units as compared to 12.6 million enumerated in 1980, up by 53.2 per cent. The housing and construction sector has remained neglected in the recent past, resulting in housing backlog of 4.3 million units, says Pakistan Economic Survey 2001-2002 and adds, “the overall housing production has to be raised by 500,000 units per annum.

In rich countries as a whole, says Economist, individuals own $23 trillion in equities and reckons $40 trillion investment in property.

The significance of housing and construction in the economic recovery and growth specially in the United States has also been demonstrated in current economic slump in industrialized states. Investment in property has combined with consumer spending to help in recovery.

In Pakistan, the housing and construction industry has been in a slump. And the two key issues are finance and NOCs. To quote the builders, the culprits are: HBFC,KESC, KDA and Water and Sewerage Board. Finance is scarce and mortgage and NOC procedures are cumbersome that delay projects and raise cost of construction. Bureaucratic controls breed corruption and stifle growth.

Yet, the property prices in Pakistan are the cheapest compared to other major cities in the world. A flat that costs Rs1-1.5 million in Karachi would be priced at Rs10 million in Bombay as well as Dubai what to talk about cities like Tokyo, Hong Kong or Singapore, where property is much costlier.

Globally speaking, housing prices outpace the inflation. In the US, the housing-price inflation, says the Economist, has slowed down to around 7 per cent from 9 per cent in mid-2001, an increase still of more than 5 per cent in real terms.

In India, bridge-financing is provided to builders for a period of 1-3 years to launch and complete a housing project and the loan is transferred to the purchaser of property and is repayable in 15 years. Sale is made on completion of projects, flats, etc. In this way, the construction is faster and the cost is lower.

In absence of bridge financing, the builders put their own investment in plots of land and raise fund for construction from advance payments made by purchasers. Instalments, complain builders, are not always paid promptly and delays occur. It means delay in project execution and cost of construction. Prices of building materials go up. Of course, purchasers, have also a lot of complaint against builders.

The housing loans by foreign banks are too costly and bulk of the middle income groups cannot afford to borrow at interest rates and fees charged by them, say builders. They stress the need for setting up of mortgage companies and also for more housing finance companies in the private sector.

Building rules need to be updated. The limits to the built area often tend to make the project unviable if the prime land costs are ignored, complains a builder.

The slump in the property market is explained by weak purchasing power and low spending by the consumers. They do not have enough money to buy property or pay instalments towards purchase of a flat.