Affordable housing
There is a growing shortage of low cost housing for the masses. While official estimates put the shortage at 10 million units, which increases every year, funds required to finance the gap are a staggering $180 billion - almost half the size of Pakistan's economy. A low-cost unit costs at least Rs2.1 million, and there's a desperate need to provide loans to the people for the same.
Pakistan Mortgage Refinance Company is of the view that property development needs to be regulated in a bid to encourage housing units for low-income groups. There is a huge demand for low-cost houses, but development only adds high-end units.
Low interest rates on mortgage is the only way to address the crisis. Unfortunately, mortgages in Pakistan account for only 0.5 per cent of its GDP while India's mortgage-to-GDP ratio stands at 10 per cent and Malaysia's is at 30 per cent. According to a research report, only 1 per cent of the housing units developed annually cater to 68 per cent of Pakistan's total population, comprising people who earn a maximum monthly income of Rs30,000. Meanwhile, it is also said that 56 per cent of the housing units constructed during the year caters to a market representing 12 per cent of Pakistan's population that earns above Rs100,000.
Different governments in the past have announced low-cost housing schemes, but substantial progress on any front is yet to be seen. At present , the banks have to take risk as they provide long-term housing loans while they have short-term deposits. Most of the deposits in the banks are meant for less than one year which is the main hurdle in giving long-term loans. The PMRC has Rs6bn funds with Rs1.2bn contributed by the federal government and the rest was contributed by nine commercial banks. Reportedly, the PMRC is also in contact with the International Finance Corporation (IFC) and Asian Development Bank (ADB) to get support for the mortgage housing development.
Affordable housing has always been a big problem in Pakistan. Lately, banks and financial institutions in Pakistan are taking interest in mortgage finance. The SBP's Quarterly Housing Finance Review has revealed that the housing finance is continuously increasing and posted a healthy growth of some Rs 4.9 billion during the first half of the calendar year. With the current surge, the overall housing finance portfolio of all banks and DFIs has reached Rs 65.70 billion compared to Rs 60.80 billion previously, showing an increase of 8 percent. As things stand today, HBFCL is the largest lender and shareholder in terms of gross outstanding, with 24 percent as the outstanding loans of HBFCL amounting to Rs 15.46 billion.
Category-wise, Islamic banks are the largest players with 38 percent share in gross outstanding. Overall Islamic and private banks are major contributors to gross outstanding of housing finance. The share of private banks and Islamic Banks (IBs) in the gross outstanding stood at 30 percent and 38 percent, respectively as on June 30, 2017. Fourteen Islamic Banking Divisions (IBDs) and five IBs have 12 percent and 88 percent share, respectively in housing finance portfolio of Islamic Banking Industry. With the new initiative now launched by PMRC it is hoped that the home finance market in Pakistan will expand rapidly in coming years making it easier for people to obtain loans house building. The government needs to adopt innovative ways to make it easier for people to build their own houses.