How To Solve The Shortage of Affordable Houses in Pakistan |
The houses are part of everyone’s needs at some point in their lives. A basic human need of having a roof over one’s head. In Pakistan however, there exists a vast difference in the supply of houses and demand of the rising numbers of people. The Bahria Town Karachi has offered a helping hand towards Pakistan Government in order to fulfill their claim of 5 million houses.
The Indian Government has 10% loan policies dedicated towards housing financing, as compared to that Pakistan had only 2% loan directed towards Housing policies. This rate has been ramped up to 5% to facilitate the current housing demand cubbing plans of governments.
The lack of the construction industry’s incentive over the years has led to the shortened amount of houses constructed each year. The rate was low per annum. On the other hand, the number of houses in demand kept increasing at a faster rate. The difference is now in the millions!
The Housing Pandemic
Where do we stand now?
The current housing need is at a mind-boggling 11.4 Million as of last year. That’s one-third of the population not having a place to live! The current population of 30 Million has enough land to set foot on but not enough Homes to live under.
Source: Profit.pakistantoday.com
This would be a huge snowball effect if the supply rate does not exceed the demand rate. Figure 1 Above shows how much there is a requirement for houses in Pakistan. The shortfall of 10.3 million was recorded years back and this Gap would keep on increasing.
It is estimated that there would be a need for 17.2 million houses in the next coming year of 2025. This is an above 150% increase in the demand for houses.
Affordability
A Mismatch to Prices
The affordability of these houses is another concern. An average consumer with a basic salary might find only unaffordable houses, especially those houses that are located near his job! with proper facilities and infrastructure these houses fetch a good price that may be hard to pay for an average salaried person.
These Houses can still be purchased through the Naya Pakistan Housing scheme and the turn of policies in the wake of Imran khan’s statement to facilitate the construction and the Real Estate Industry. You can find yourself proud of a house that you dream of through a Bank providing loans at a rate of 5% and 7% for affordable houses.
The houses are a need for affordable houses for all income groups at all levels. The demand for low-income housing is the farthest from achieving a dream home. Around 68 percent of the population gets to achieve 1% of total housing units within their buying reach.
The Loan Game
Are Affordable Houses Possible Now?
The rate at which stakeholders are analyzing over is very concerning. A blooming stage is yet to be set since the figured amount is 1.07 Million housing units per year, this rate is building up. The stats show that the rate would jump to 1.24 million units per year in 2025. An increase in 0.17 million units just in a couple of years would tune up the current market demand for houses.
The Loans might be a solution!
The loans and their rate have dropped considerably due to the banks being instructed to facilitate the construction and Real Estate industry. The State bank of Pakistan has relaxed its conditions and has Instructed all other major banks to provide affordable houses.
The application forms and registration has been kept simple with no such complications. The basic details are asked in those forms. Making a huge simplification in form-based and online registration would increase the likelihood that any salaried person would be able to fill the form and attain the loan.
If we take one bank out of many, for instance, MCB Bank, has started itsEasy housing Loan service following the footsteps of the Central Bank. The Eligibility of such loans is less strict than any other loan. These are
Eligibility
- The borrower includes all men/women holding valid CNIC.
- The borrower must not be an owner of any residential housing unit /flat / apartment.
- An individual can have a subsidized house loan facility under this scheme only once.
- The loan can be applied against the property on which the borrower will be the first purchaser (first transfer of house/apartment/flat) of newly constructed affordable housing units (Not more than one year old from the date of application). However, this requirement will not be applicable till March 31, 2023, under Tier 0, Tier 2, and Tier 3.
- The loan can also be applied to finance a plot as well as construction on the same.
- Customers can also utilize the loan for an expansion/extension in their existing homes.
If we now consider the variant of what sort of houses can be built, the options are many for anyone who wishes to see a new home.
Variants Allowed:
- Home Purchase
- Plot Plus Construction
- Home Construction
- Home extension/ expansion
The Other Information Regarding the rates can be tabled as follows:
The Pricing stated by the banks is fixed at most parts. The state bank of Pakistan has stated the rates which are being followed by most banks. The Interest rates are fixed at 5% and 7% for the 10 years. After the 10 year duration, the rates differ a bit. The Kibor and further addition of 2.5% are mostly feasible for most investors.
Going back to our example of MCB, the pricing Rates are:
Expert Opinions
A good Step Indeed
Now Back to house Financing. You made a thorough decision and got yourself a loan to finance your house construction or purchasing of a house. You start off with a mortgage or initial down payment in the case of construction. The down payments usually float around 20% and the remaining amount can be filled in by the bank. A Managing Director of the Rafi group, Shazil Imtiaz started his remarks on this as:
"Under the low-cost housing scheme, applicants will have to provide 10 percent of the loan amount as equity, while the remaining 90 percent will be financed by banks. Usually, the banks ask loan applicants to provide 30 percent of the amount themselves and they finance only 60-70 percent. And the interest rate is ranging from five percent to a maximum nine percent,"
The Naya Pakistan Housing Scheme
A Rubble in Dust
The Naya Pakistan Housing Scheme is deemed as an excellent initiative by the current government of Pakistan. The NPHS is an affordable housing scheme that would help the needy and poor-middle financial class people of Pakistan in financing their houses through the period of 20 years on easy loans on the lowest 5% interest rate per annum.
Moazam Nawaaz, a CEO of a Lahore based Estate shared some uplifting remarks:
"It is an excellent move that has revived the country's real estate industry. We have noticed brisk activity in the market and I am confident that the proposed package will not only revive construction, real estate, and allied industries but also put the economy on the road to a quick recovery,"
The housing financing loan scheme also helps overseas Pakistanis. They would be to finance their home construction here in Pakistan through local banks’ fundings which would reach towards their relatives as well.
Finally: The Complications
Money, Land, and Limitations
There should be reform for urban lands. The issues are several that exist for land, its use, and construction. Reforms are needed. Other key factors that enhance the complications are as follows:
- A heavy non-utilization fee on land and property.
- An urban land ceiling act whereby no one person can own more than 500m3 of urban land.
- No settlement should have a density of fewer than 400 persons per hectare.
- No person who has already taken out a loan for a house building should be given another loan.
Conclusion: An Overview
The Housing demand may affect the very need of consumers in other sectors as well. The GDP is also impacted by the real estate and construction sector, therefore any gap in demand and supply is a loss towards GDP. The Naya Pakistan Housing Scheme is a gateway for fulfilling the housing demands of a middle and financially poor class of Pakistan. The Banking Sector is also informed and authorized to soften their requirements for house building loans. This would greatly increase the number of people deciding on getting a loan for themselves at rates for affordable houses. Lastly, the Overseas Pakistanis can fund their housing constructions through local banks as well.
Real Estate Investment has many advantages, from being a stable and great source of passive income to building your equity. There are many ways to appreciate your net worth but investing in Real Estate provides the most value.
You may contact us at RedBox if you have any queries regarding any investment. You may read our other articles to fulfill your investment knowledge base and what’s in trend right now. You can also contact the author of this article at Awais.Business420@gmail.com if you have any queries.
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