More than 70% of the total world population would be living in the urban areas by 2050. This calls for a dramatic change in the policies for house financing throughout the world. Pakistan is no exception in this regard.
Immediately after assuming power back in 2018, the PTI-led incumbent government commenced making concerted efforts to promote the housing sector in line with its manifesto of building 10 million units focusing primarily the unprivileged stratum of the society which has been neglected hitherto. The recent development of revising downward the markup rates for housing subsidy scheme is admirable since the subsidized markup for financing for one to five-year tenor will now be 2% vis-à-vis 3%, for six to 10 years will be 4% vis-à-vis 5% and for 11 to 15 years will be charged at 5% vis-à-vis KIBOR plus 250 basis points for 15 to 20 years. The financing under the Mera Pakistan Mera Ghar (MPMG) seems to gather momentum as in 2021 with the approvals to the tune of Rs117 billion. There are signs of the construction industry making headway ever since this scheme was launched even when the cement and steel prices have spiked unduly. The incumbent prime minister lauded the construction industry during a recent event saying the construction industry was the driving force of the country’s economy since 30 more allied industries thrive when there is growth in the construction industry.
Circumstances in our country are a far cry from the other countries. Housing is deemed a basic need for every citizen in the western world and all efforts are made to ensure the financing facility for all and sundry. Mortgage financing in the US and Europe is at around 80% whereas it is abysmal less than half a percent to the GDP ratio in Pakistan. When compared with even our South Asian counterparts, one would be amazed to know that it is 3.4% in South Asia. Pakistan lags behind in this regard since ages. No concrete steps have ever been taken which has resulted in the housing backlog of around ten million in Pakistan at this juncture.
There is no denying the fact that banks in Pakistan have traditionally underserved their lending in the housing sector and have been enamored of risk-free investment in government papers which has to be altered now. There is some substantial development made by the central bank recently increasing the limit of banks’ exposure to housing and construction to 25% from the erstwhile 15% of their aggregate advances and investments. Back in the day, in 2020 to be precise, banks and DFIs were advised to achieve mandatory financing targets for housing and construction of buildings equivalent to at least 5% of their domestic private sector advances by Dec 31, 2020.
PTI’s flagship ‘Mera Pakistan Mera Garh’ (MPMG) project may become a reality in case the mortgage financing is as per the objectives of the incumbent government. Some time back the market was abuzz with the news that the construction sector was reluctant to take risks in initiating MPMG projects however the situation seems far better today. It must be ensured that every individual whether falling in the category of Tier 0 (T0), Tier 1 (T1), Tier 2 (T2) or Tier 3 (T3) get financing with ease so that the government may also chalk up its objectives set in its manifesto.
There is consensus that the more the employment opportunities, the better the mortgage financing scenario in a country. Pakistan has been struggling to create employment opportunities which eventually would help in owning a house etc. SMEs have been playing a crucial role in the entire world in terms of employment opportunities. Pakistan has been missing this link as such.
SMEs’ share is 30% in the GDP of Pakistan vis-à-vis other low-income countries of 60% and over 95% of the GDP in the advanced economies. Every Pakistani could think of owning a house in case one has stable job with stable income which even is requisite for getting financing facilities from the banks.