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Pakistan house financing – banking needs to push forward

Housing plays a key socio-economic development. According to UN about 3 billion people will need new housing and basic urban infrastructure by 2030. Without affordable housing financing solutions, many urban poor can’t get decent formal housing, whereas weak economic condition of our country making the chances difficult. Currently, the total population of Pakistan is over 207 million people, and is the world’s sixth most populous country. Due to poverty, inequality, macroeconomic, political and security conditions, natural disasters, unreliable power supply chain and now the Covid-19 pandemic pushed the country’s rank low on the human development index, at 147th out of 188 countries. Economically the root cause of lack of house finance is low and stagnant investment rate. Now it’s a major reason that constraint to achieve the goal. Therefore the housing finance in Pakistan is particularly low in the region or as compare to other South Asian countries.

Over the next 20 years, the annual urban population is increasing means the demand of housing is soaring. Around 47 percent of urban households live in substandard housing, or informal settlements called Katchi Abadis. Moreover, 10 percent people live in the jointly-owned home and merely 3 percent have own house. Therefore to solve these problems the present government has inaugurated housing scheme on July 2, 2020. Along that six projects will be supervise by the Federal Government Employees Housing Authority and one will be executed by the Pakistan Housing Authority Foundation.

Furthermore World Bank and its member International Finance Corporation IFC invested PKR 500 million (about $3.2 million) in Pakistan Mortgage Refinance Company Limited (PMRC) for Khyber Pakhtunkhwa, Balochistan and FATA. This is first time when World Bank and IFC Co-investment supported by International Development Association’s Private Sector Window (IDA, PSW) in Pakistan with the collaboration of State Bank of Pakistan. Government will provide affordable houses and targeted to construct rural areas in 400,000 housing units a year, Peri-urban areas 200,000 housing units a year and urban areas 400,000 housing units a year.

According to (PMRC) in future around half of the families will be live in substandard housing in towns and cities between 2030 and 2040. Although Pakistan has a high demand of affordable houses but the current housing deficit is soaring from ten million units per year to 700,000 units per year. Moreover as per the report shared by World Bank Pakistan percentage of lending is 0.3% is much lower than rest of the South Asian countries, where other countries percentage stands for 3.4%. Therefore the international banks and investor avoid taking part in housing financing. Prime Minister of Pakistanfacing challenges and recorded the major challenges of house finance is ‘money’ and the government has not enough money for the construction of five million houses in five years. Therefore, the private sector support will be needed. All over the world policies is formulated for the prosperity and country development. In America and England, 80 percent of houses are built with bank financing, mortgages while in Malaysia 30 percent and in India is 12 percent. But Pakistan is getting merely 0.2% support from the banks.

Bank in Pakistan do not lend people, especially to poor people that they can build their houses. Loans are given on the high interest rate that is not affordable for a straw man. So, bank either State Bank or Islamic bank should formulate policies that be a feasible for a people. Policies should be drafted in such a way if a labor or daily wages earn 20,000 rupees per month they could easily get out of debt. Mostly Pakistani people avoid taking loan for house development due to interest rate and strict policies. For Pakistan housing development it is crucial that bank should maximize the house finance. And give loan to the people despite people do not have assets or credit.

The author Faiza Saleem is a M.Phil, research student, University of Karachi

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