EDITORIAL: Prime Minister Imran Khan must have been happy to hear that disbursement of loans for construction of housing had successfully begun from 7,700 branches of commercial banks across the country. At a weekly meeting of the National Coordination Committee (NCC) on Housing, Governor State Bank (SBP) Dr Reza Baqir informed the Prime Minister that a special steering committee had also been constituted to review modalities for disbursements of housing loans regularly. This should effectively remove the only sticking point in the PM’s Naya Pakistan Housing Program (NPHP), which was originally supposed to provide affordable housing to five million families at the very bottom of the food chain but ran into technical problems since the country did not have adequate foreclosure laws which discouraged banks from lending under this head because of the high likelihood of default. So a situation was created where banks, even when flushed with liquidity, refused to look towards housing finance until a model could be developed to hedge their risks. Fortunately, the government was able to work around such problems through presidential ordinances and rare consensus in parliament and the SBP can now muscle commercial banks into lending for housing construction. That is precisely the good news that Dr Baqir had been trying to deliver to the prime minister for a number of days, and could not have found a more fitting opportunity than the weekly NCC meeting on housing.
Even more importantly, this development should also breathe some much-needed life into the government’s ambitious construction package, which seeks to stimulate economic activity and raise employment in about 40 related sectors as well. Surely, authorities realise that focusing on commercial real estate is no longer economically viable, especially in light of the coronavirus pandemic, since the ease of working from home has cut down on office space demand while advances in online retail have diminished the appeal for commercial plazas and shopping centres. So the future of construction lies in housing. And if the government’s smart idea of making the construction sector lead the economic revival is going to have any chance of success, especially considering the small window that allows suspect money to take part in the process as well, banks will have to overcome their trademark risk aversion and begin lending in large amounts for this purpose.
Yet now that the money has begun to flow, the next logical and extremely necessary step would be to make long-term lending and mortgage models and create proper debt markets for housing. Short-term, semi-secured loans with awkward interest rates might cater to a section of the working middle class and get the ball rolling, but such models will run out of steam long before the country’s real housing potential can be tapped in any effective manner. Banks need to understand that by trying to eliminate risk from their due diligence matrices they reduce themselves to rent-seekers instead of legitimate business entities. And the government must now quickly get to work on developing a framework that can funnel some, if not a lot, of this money towards the unbanked population that hovers on either side of the poverty line and represents the largest bulk demand for housing in the whole country.
It’s for a reason that housing starts are among the most closely followed economic indicators in most advanced economies. It is a leading indicator and housing stocks tend to be among the first in the green when the economy turns around, gradually pulling up associated sectors like timber, steel, etc. The government is counting on getting this cycle going as soon as possible in order to claw its way out of all the financial difficulties it is surrounded by, especially since the second wave of the pandemic threatens to put the economy to sleep once again and there is just not enough money in national reserves for another comprehensive stimulus package. Hopefully, any remaining problems will be sorted out and housing will take off before any form of paralysis can set into the economy
Copyright Business Recorder, 2020
Comments
Comments are closed.