Key chain

The Real Estate Sector is broadly divided into three segments i.e., residential, commercial and industrial real estate. It covers the activity of buying and selling of properties falling under these segments. Accordingly, the residential real estate segment covers the activity of buying and selling of properties in the shape of residential land and constructed built up properties. The analysts and the investors gauge the growth and performance of the sector differently by using different parameters. The analyst focus on the macro parameters like demographics, economy, interest rate and government policies etc. Whereas an investor focuses on micro parameters like location, speculative news, comparative prices, prospective growth activities and personal interests etc.

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The term housing refers to houses and buildings for people to live in. It also includes the process of planning or provision of accommodation by government or any other authority.

The real estate demand in Pakistan remained fluctuating since long. This has resulted in escalating the housing requirements in the country as well. Pakistan Housing Finance Project Report, a document of the World Bank, reveals that as of today, the estimated housing shortfall in Pakistan is approximately up to 10 Million units. The demand for housing increases by 400,000 to 700,000 units annually, whereas currently only 100,000 to 350,000 units are being fed into the system annually. This means that the backlog of 10 million units is increasing by 3.5% annually. As such, in order to cope with the situation, we need to inject 0.9 to 1.1 million units annually for a 20 years plan, failing which the real estate sector of the country will certainly be entangled in a crises, like the one we are facing today, in the shape of load shedding.

Factors like increase in urban migration, population growth, high cost of living and low saving rates have contributed a lot towards escalating the shortfall in housing sector. Besides this the most important factor towards slow growth of housing sector in Pakistan is access to home loans. According to State Bank of Pakistan’s Housing Finance Review, “the mortgage to GDP ratio in Pakistan stood at 0.5 percent as on December 31, 2016”. Quite interestingly in the most developed countries, such as in Denmark or the Netherlands, mortgage loans exceed 100% of GDP. USA is having more than 67%. In India it is around 7%. Even Bangladesh is having mortgage loans of 1% to her GDP. The trend can be gauged from the fact that the average age for first-time home buyers in the U.S. and Australia is 33 and 32 respectively and this has remained unchanged for the last 20 years in Australia alone. In Pakistan, unless people get access to home loans, the problem will aggravate, day by day.

The major reason of urbanization in Pakistan is the job placement of young individuals in urban areas. Even after retirement people prefer to settle in the urban areas, rather than going back to their native towns & villages. If people are provided with an opportunity of home loans, obviously the demand will increase automatically, inducing the developers to supply accordingly. As it is very well said that construction is the mother of many industries and impetus for labour force, as such this increase in demand and supply will generate economic activity on self-propelled basis.

As part of housing finance reforms in Pakistan and in line with India’s Real Estate Regulation Act (RERA), a bill to establish a Real Estate Regulatory Authority for regulation and promotion of the real estate sector in Pakistan has also been introduced in the Senate on 21.08.2017. According to the bill, no real estate project will be presented in the market for sale without prior registration with the envisioned regulatory authority. Registration of any individual working in the real estate sector with the authority will also be mandatory. However after the bill was presented in the upper house of the parliament, it was forwarded to the concerned committee. The Ministry of Capital Administration and Development Division (CADD) sought feedback from CDA over the bill and after examining the provisions of the bill, CDA pointed out several clauses that, it claims, are contradictory to the CDA Ordinance as well as other rules and regulations of the civic body.

Furthermore the State Bank of Pakistan introduced a regulatory framework in 2006 to encourage banks/development finance institutions (DFIs) to increase their investment into the housing and construction sector but generally the banks are reluctant to long term financing like housing finance, owning to long term engagement of funds besides low rate of recovery and high rate of classified provisioning.

Despite understanding the reluctance of Banks and Financial Institutions to wards housing finance, the World bank has come up with the project of developing a housing finance plan to help Pakistan meets its growing demand for residential units whereby the World Bank will provide funds to the tune of $.140 million for low-income housing projects that will reach banks through Pakistan Mortgage Refinance Company (PMRC). A shareholders’ agreement, in this regard has been signed on Saturday the 14th April 2018 in which the government holds a 49% stake, while private sector banks hold the remaining majority share in the PMRC.  It is imperative here to mention that another objective of the World Bank’s line of credit is to enable women to increase their house ownership, as presently only 2% of the women folks own houses in the country.

Although a much is being done in the real estate and housing sector yet we need to DO MORE…


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