PAKISTAN: NATION WIDE PROVISION OF HOUSING FINANCE
The “Recommendations for Nationwide Provision of Housing Finance 2007,” compiled by the Housing Advisory Group (HAG) under the State Bank of Pakistan (SBP), offers a comprehensive analysis of the housing finance sector in Pakistan. This report identifies critical challenges and proposes strategic recommendations to enhance the accessibility and efficiency of housing finance across the nation.
Introduction
A robust financial sector is pivotal for sustained economic growth, with housing finance serving as a fundamental pillar. The housing and construction sectors are notably labor-intensive, establishing backward and forward linkages with over forty industries. In developed countries, housing finance significantly drives the economy, often constituting more than 50% of GDP. Conversely, in many developing nations, this figure hovers around 15%. Within the South Asian context, India reports housing loans to GDP at approximately 9%, whereas Pakistan lags with a mere 1%. According to the 1998 Census, Pakistan faced a housing backlog of 4.3 million units, which escalated to an estimated 6 million units by 2005. Furthermore, the incremental housing need during 2005-2010 was projected at 3 million units.
Government’s Evolving Role in Housing
The Government of Pakistan has demonstrated a commitment to long-term housing sector reforms. In alignment with the National Housing Policy (NHP) 2001, the government’s role has transitioned from a predominant provider to an essential facilitator of housing facilities. This strategic shift has led to a progressive decrease in the share of housing within public sector programs.
Identified Challenges in the Housing Sector
Several impediments hinder the growth of Pakistan’s housing sector:
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Land Ownership Issues: Ambiguities in land titles and ownership complicate property transactions.
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High Transaction Costs: Elevated costs associated with property transactions deter potential homeowners.
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Weak Legal and Regulatory Framework: Inadequacies in laws pertaining to foreclosure, transfer, tenancy, rent control, and property acquisition impede sectoral growth.
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Ineffective Land Registration Systems: The current systems are inefficient, leading to disputes and lack of clarity.
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Limited Availability of Affordable Land: Scarcity of land designated for affordable housing exacerbates the housing deficit.
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Insufficient Long-Term Funding: A dearth of long-term financial resources restricts the provision of sustainable housing finance.
Housing Finance Constraints
The demand for housing is significantly affected by:
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Limited Financing Capacity of Low-Income Groups: Financial constraints prevent many from accessing adequate housing.
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Low Penetration of Housing Finance: Housing finance services are not extensively available, particularly among the poorest segments.
Despite rapid expansion in retail credit and a profitable banking sector, the true potential of housing finance remains underutilized, representing only a fraction of the total loan portfolio.
Financial Sector Reforms
Initiated in the 1990s, financial sector reforms in Pakistan have promoted a market-based financial system where market forces determine markup rates on deposits, investments, and advances. This paradigm shift has influenced policies related to housing finance provision. Since 2002, the SBP, in collaboration with private and public sector stakeholders, has facilitated an environment conducive to the development of a market-based housing finance system. Objectives include expanding public choices by increasing housing finance channels, enhancing affordability and usage of housing finance products, and improving service quality.
Formation and Objectives of the Housing Advisory Group (HAG)
The SBP constituted the HAG, comprising eminent bankers and housing sector specialists, to identify bottlenecks and propose measures for establishing an effective, broad-based housing finance system. The HAG’s report outlines ten recommendations aimed at providing middle-income families with access to affordable housing finance, thereby mobilizing dormant savings and generating new ones. Investment in the housing sector is anticipated to catalyze economic activity in related industries, given that at least 40 industries are directly or indirectly connected to housing and construction. Enhanced activity in the housing sector is expected to provide a significant boost to the economy.
Key Recommendations
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Legal and Regulatory Reforms: Strengthen foreclosure laws, streamline property transfer processes, and reform tenancy and rent control regulations to create a more secure environment for housing finance.
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Land Administration Improvements: Enhance land registration systems to ensure clear titles and reduce transaction costs, facilitating smoother property transactions.
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Availability of Affordable Land: Identify and allocate land specifically for affordable housing projects to address the needs of low and middle-income families.
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Development of Long-Term Funding Sources: Establish mechanisms to provide long-term funds for housing finance, ensuring sustainability and affordability.
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Capacity Building in Financial Institutions: Train and equip financial institutions to design and offer housing finance products tailored to diverse income groups.
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Public-Private Partnerships: Encourage collaborations between the government and private sector to develop housing projects and finance solutions.
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Incentivizing Low-Cost Housing: Provide tax incentives and subsidies to developers and buyers involved in low-cost housing projects.
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Establishment of Secondary Mortgage Market: Develop a secondary market for mortgages to enhance liquidity and enable better risk management in housing finance.
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Consumer Awareness Programs: Launch initiatives to educate the public on housing finance options, processes, and responsibilities.
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Data Collection and Research: Establish a housing observatory to collect and analyze data, informing policy decisions and market strategies.
Also Read: HOUSING DEMAND ACROSS INCOME GROUPS IN PAKISTAN