Housing Industry in Pakistan
Pakistan, the 5th most populous country in the world, thrives with a young population at a population growth of 2.4%. According to different statistics available on the web, Pakistan’s housing and construction industry accounts for 2.5% of the GDP and employs ~8% of ~60M labor force of the country.
It acts as a stimuli across the economy by creating leverage on growth, investment, and jobs through a constructive value chain by supporting ~40 industries directly or indirectly. In a country with 37% population residing in urban areas, there exists a shortage of ~ 12 Million housing units and is likely to grow to 17 Million by 2025.
In a country with increasing inflationary pressure, dragging down the purchasing power of the common man, access to finance for this sector remains a challenge both for the builders and end-users.
Moreover, the dearth of Housing Inventory, insignificant product innovation, complex mortgage documentation, restricted availability of long-term funding solutions, absence of town planning concept and development of new towns, and a volatile real estate market are other important issues faced by this industry.
Read More: Role of Banks in Mortgage Financing
Steps Taken at National Level
Despite the above challenges, all players of the industry are determined to bring about reforms to boost this sector to enable it to perform at its fullest potential: The Government has been extending support by developing the mortgage market and also:
- Introducing National Financial Inclusion Strategy (NFIS)
- Formation of a special task force for Low Income Housing
- Establishing Naya Pakistan Housing Development Authority (NAPHDA)
- Reducing income tax to 20% from 35% on Low-Cost Housing Finance\Formalizing foreclosure laws and rationalising taxation structure
- Introduction of Government’s Markup Subsidy Scheme for Low-Cost Housing
- Formation of Pakistan Mortgage Refinance Company to support loan losses and provision of cost-effective prefinance and refinance for the financial institutions.
- State Bank of Pakistan, through various regulatory interventions, is also providing sufficient playing field for Banks/DFIs, which includes Relaxation in General Reserve Requirement, reduction in risk weights for exposure under Low-Cost Housing while calculating MCR, introduction of Roshan Apna Ghar for Pakistani diaspora, higher Loan to Value ratio for Low-Cost Housing, softening of exposure limit on real estate sector for the banks and allocation of mandatory housing finance targets for Banks, MFBs and HBFC
Issues on hand
- Banking the informally employed
- The dearth of affordable Housing Inventory Insignificant Product Innovation
- Complex Mortgage Documentation
- Ever-increasing High Cost of Construction
Role of BOP
In the realm of housing, BOP is fast-moving to be the leading bank in the industry, evident from its housing portfolio growth from Rs. 3 Billion to Rs 16 Billion in a span of 1.5 years. In Low-Cost Housing, the bank has started from an insignificant portfolio in April 21 to above Rs. 1.2 Billion and over 400 units in October 2021. This has been possible only through sheer dedication and commitment of Board of the Bank. BOP has undertaken various structural and strategic reforms such as:
- Oversight of Housing Segment at Board & CEO level through Board Level Committee for Priority Sectors chaired by Dr. Muhammad Amjad Saqib, founder of Akhuwat.
- Digitization of loan applications and loan processing, including document collection.
- Formation of centralized credit factory.
- Enhancing customer experience through increasing modes of communication: E-Tracking, SMS Alert, 24×7 Joint Call Center, and Dedicated Complaint Management.
At BOP, the focus is on Low-Cost Housing. Being a public sector bank, we have received an overwhelming response to the Governments’ markup subsidy scheme (GMSS) for Housing. The bank is engaged in various initiatives of the GoP, GoPb and SBP for the housing & construction industry. At the Federal Government level, BOP is involved with NAPHDA and is an active contributor towards reforms agenda. BOP is the lead bank in consortiums formed by the LDA City Housing Project and Peri-Urban Project of GoPb. The bank is dedicatedly progressing towards maturing both the transactions, milestone by milestone.
The Government of Punjab intends to provide low-cost constructed housing units built on state land located in peri-urban areas of the Punjab province. Under this project, GoPb plans to construct more than 122,000 units across 146 Tehsils in the province and has so far identified 34 sites suitable for development and construction. It is estimated that approx. 10,000 housing units shall be built on these 34 sites under Phase-I of the project. So far, 3 sites (Raiwind, Sargodha, and Chiniot) have been mobilized through EPC Contracts with FWO and NLC for the construction of 839 low-cost housing units. The cost of a single house is approx. PKR 1.8 million, of which NAPHDA shall pay PKR 300,000 as cost subsidy, while the remaining amount shall be financed through mortgage finance facilities extended to the individual buyers by a consortium of 10 banks being led by BOP. BOP has so far received funding commitments totaling PKR 14 billion for Phase-I of the project from participating banks.
BOP is also a leading bank to design and implement the Roshan Apna Ghar product. It is a fully digitized platform, and charge documents are signed digitally. Hence, providing overseas Pakistanis to own a house back home on easy terms and conditions. Both Lien-based and Non-lien based products are available under this umbrella.
BOP is also one of the key contributors to the Kamyab Pakistan Program (KPP). Mr. Zafar Masud, President, and CEO of the bank, is also a convener of the steering committee for the said program. Under the program, housing loans shall be provided to such Pakistanis who fall in the lowest income group.. These loans are based on the idea of microloans through Microfinance providers based on the funds provided by Wholesale lenders.
For sustainable business growth and meeting the demand and supply gap, the bank has formed alliances with developers, builders, and corporate entities for end-to-end optimization of transactions. The Bank is in an exclusive partnership with MAAKSONS (Pvt. Ltd), the country’s top-rated engineering and construction company for the provision of developer and end-user financing for 246,3 Marla, and 160, 5 Marla Housing units in its flagship housing scheme GARDEN SQUARE Gujranwala. The bank has entered into similar arrangements with DHA Bahawalpur, FGEHA, Akhuwat Islamic Microfinance Bank, Daewoo Pakistan, Kings Developers & Greenwood City.
Long-term funding solutions and the availability of credit loss guarantees are some of the challenges, which we are trying to address by utilizing the opportunity available through the Pakistan Mortgage Refinance Company (PMRC). BOP is the first bank in the industry to sign MoU with PMRC for availing refinance and first loss coverage on the Low-Cost Housing portfolio. It is believed that the innovative proposition of PMRC shall go a long way in the industry’s confidence building.
There is a lot to be done by all stakeholders in the domain of housing. Luckily, the environment seems to be conducive, and an all-out effort shall prove to be very fruitful in accelerating the growth of the housing industry: First and foremost, the continuity of subsidized schemes should be ensured by the government as the GMSS for Low-Cost Housing has witnessed a considerable uptick in the mortgage financing activity. Optimization of the conventional mortgage process including computerization of land records for ease of document retrieval, one window facilitation, rationalization of transfer fee and waiver of fee for mortgage in the name of Banks, Development of Scoring Engine & Statistical Scorecards for client evaluation, Facilitation through ESCROW accounts for payments to regulate transactions and Regularizing / Licensing of Realtors and formation of a governing body thereof are some future steps which may prove to be a game-changer in terms of development of Housing Finance Eco-System in the country