Shelter has been one of the basic necessities of human life. Unfortunately, in the present circumstances, to build the house for poor, lower-middle and middle class is impossible due to inflation of building materials and sky-rocketed prices of the land in Pakistan. The housing is a major need in Pakistan, both for rural and urban populace, and a hybrid of micro and housing finance can meet the unfulfilled demand of a vast segment of our society. The demand for housing finance in the country is enormous and there is a huge backlog of housing units in the country.
There is dire need to invest in housing-building sector and fetch direct foreign investment in Pakistan. Pakistan faces acute shortage of housing in which almost 85 per cent people do not have their own houses. Pakistan was facing a backlog of 2. 7 million houses and every year 0. 5 million new abodes are needed to meet the growing demand of houses. Rs70 billion annual investment is required to construct 0. 5 million houses. All the provinces had been asked to identify 100 acres land for low-cost housing projects to accommodate majority of homeless people.
Laws related to housing and land were being amended to remove bottlenecks in launching low-cost housing units in the country, which needed six million houses and each year this demand increased to 0. 3 to 0. 4 million. In the present circumstances, incentives announced for construction and housing industry in 2004-2005 budgets, are unlikely to boost the construction and housing activities. An investment of Rs. 950 billion is envisaged in the MTDF for the development of housing, including Rs 920 billion investments by the private sector and Rs.
30 billion in the public sector. The private sector will be involved in construction and improvement of at least 3 million housing units during 2005-10 in urban and rural areas. In addition, the private sector would also undertake area development schemes with necessary infrastructure to provide developed residential plots, and construct about 25,000 houses/flats for the public servants under house ownership schemes, mostly in urban area during next five years.
The PSDP allocations would be utilized mainly by the Federal and Provincial Governments for undertaking infrastructure development in ongoing housing programmes and new area development schemes for provision of developed residential plots with necessary amenities. In addition, the Government would continue constructing public offices and essential accommodation for Government servants and Constabulary Armed Forces. During the first year of MTDF (2005-06), the federal PSDP allocation for housing is earmarked as Rs. 2 billion for housing on ownership basis, Federal Government Employees and construction of office buildings.
Whereas, the Provincial Governments are required to allocate Rs. 3 billion during 2005-06 in order to accelerate the house construction activity throughout Pakistan. Currently there is inadequate housing finance, management capacity, and awareness. Weaknesses in the land titling and land information systems restrict the possibilities of mortgage finance to limited urban areas and are largely responsible for the concentration of lenders to the upper-income groups for whom the property collateralization is not the main risk-mitigating factor.
The lack of a long term fixed rate funding market acts a constraint as it increases the risk for the lenders and restricts the menu of long term mortgage products thus curtailing affordability of the middle and low income groups to buy even a small plot and build house thereon. The main funding from the existing banks for housing loans is derived from their deposit-base, which leads to major financial risks relating to interest rates and liquidity.
The interest rate portion is managed by relying on floating rates and keeping fixed rate durations for just a few years. Liquidity risk is currently low due to constraints levied by the State Bank of Pakistan delineating a maximum exposure limit for the banks vis-i?? -vis the home finance. Until now the main crux of housing mortgagees was towards the floating rate side. Given the recent run up in rates, the mortgages have been the primary victims, as they have had to pay the cost of rising interest rates in the shape of enhanced monthly mortgage payments.
In a fixed rate mortgage, which is funded by short-term liabilities, an increase in interest rate primarily affects the mortgagee financial institution because of re-pricing of liabilities. Thus, it is prudent to develop long term fixed rate funding arrangements for enabling banks to offer fixed rate mortgages. Institutional investors such as Pension Funds and Insurance Companies can afford the alternate long-term investment opportunities such as 15 or 20-year mortgage backed securities.
However, banks, especially the large ones with huge pools of funds in the shape of demand and time deposits liabilities, are unwilling to forego the high spread they are earning by financing their long term housing loans through short-term liabilities. The present government appreciating the gravity of situation and realizing the importance of this sector for its potential to generate employment, decided to revitalize it as a vehicle for economic revival. Accordingly, Ministry of Housing and Works formulated a new National Housing Policy – 2001 approved by cabinet on 5-12-2001.
The policy addresses all the issues relating to land matters, house finance, construction, services sector, low cost and rural housing, building material and infrastructure development, building and zoning regulation, and institutional framework. It clearly sketches out the role of Federal govt up to the local government defining the desired roles to be played by governing bodies on each level. The policy also seriously considers the multifarious problems including housing shortage, lack of housing finance, non-existence of foreclosure laws, lack of planning, outdated building and zoning regulations, etc.
The major emphasis of the policy is on resource mobilization, land availability, incentives for home ownership, incentives to developers and constructors and promotion of research and development activities to make construction cost effective. The main objective of the policy is to create affordability to owning a housing unit, especially for the middle and low income groups. For the monitoring and implementation of the policy a number of committees have been constituted and are being regularly convened to ensure implementation and monitoring.