A robust financial sector is the key for any country to have sustained long-term growth. Within the financial sector, housing finance is one of the fundamental pillars that support the development of the economy, as housing and construction sectors are labor‐intensive and have backward and forward linkages with more than forty industries. In most developed countries, housing finance is one of the main drivers of the economy as its percentage to GDP is more than 50%; whereas in many developing countries it is around 15%. Moreover, in the South Asia region, India has housing loans to GDP at around 9%; whereas, Pakistan lags behind almost all comparative economies at 1%. According to the 1998 Census, the housing backlog was at 4.3 million units, which was estimated to reach a level of 6 million units in 2005. In addition to the backlog of 6 million housing units, the incremental housing need during 2005‐10 is estimated to be 3 million housing units.
2. The government of Pakistan is committed to long‐term housing sector development reforms. In accordance with the principle stance of the National Housing Policy (NHP) 2001, issued in December 2001, the role of government in the housing sector has evolved from predominant provider to essential facilitator of housing facilities; therefore, the share of housing in the public sector programs has progressively decreased.
3. There are certain issues like improper titles, vague land ownership, and high transaction costs that hinder the growth of the housing sector. Moreover, weak legal and regulatory frameworks affect foreclosure, transfer, tenancy, rent control, and the acquisition of immovable property. Transaction costs are high; land registration system is ineffective, land for affordable housing is rarely available, there is an insufficient supply of long‐term funds for housing finance. Concerted efforts should be made to remove these bottlenecks.
4. Another key constraint affecting demand for housing facilities is the lack of financing capacity of the poor, as well as a low penetration of housing finance, especially in the poorest segments of the population. Despite the rapid retail credit expansion in an increasingly sophisticated and highly profitable banking sector, in the midst of impressive overall macroeconomic growth in the recent past, the true potential of housing finance has not been realized. The housing portfolio still represents only a fraction of the total loan portfolio of the banking sector.
5. The financial sector reforms initiated in the decade of 1990s in Pakistan have been able to promote a market-based financial system, wherein the market forces of demand and supply determine markup rates on deposits, investments, and advances. The change in policy with respect to the provision of housing finance is a result of this paradigm shift in Pakistan’s financial system. Since 2002, SBP in association with private and public sector stakeholders, has been playing a facilitating role in creating an enabling environment for the promotion and development of a market-based housing finance system in the country, with an objective to expand real choices offered to the general public by increasing the number of channels through which housing finance can be provided to the general public, enhancing the affordability and usage of housing finance products and services and improving the service quality of housing finance.
6. The SBP constituted an Advisory Group on Housing Finance (HAG), comprising eminent bankers and housing sector specialists, for identifying bottlenecks, besides, proposing measures for instituting an effective and broad‐based housing finance system in the country. HAG came up with a report containing Ten Recommendations to contribute toward a housing strategy that provides middle-income families with access to affordable housing finance, which will help mobilize dormant or locked savings and generate new savings. In turn, each rupee invested in the housing sector is likely to catalyze economic activity in other sectors as at least 40 industries are directly or indirectly related to housing and construction. The increased activity in the housing sector will provide a much-needed boost to the economy. The report has been prepared in the spirit of consolidating the knowledge of the constraints facing the housing sector in Pakistan which have been highlighted during the course of recent dialogue.