Affordable Housing: "5 million houses is not an impossible target"

Interview with Fayyaz Ilyas, Chairman ABAD

Builders and developers are an important cog in the construction and housing machinery. We spoke to the new Chairman of the Association of Builders and Developers (ABAD) to ascertain the progress in the housing industry as well as how well-received the Naya Pakistan Housing Program (NPHP) and the government's Construction package is within the builder community. This interview also highlights the challenges builders are currently facing still in making robust real estate development possible. Here are edited excerpts.

BR Research: The government planned on building 5 million houses, of which 100,000 houses are already underway. How is the progress in Sindh versus other provinces?

Fayyaz Ilyas: From the outset, the first issue is procurement and arrangement of lands. In the province of Punjab, KP and even Baluchistan, the federal government has land banks available where projects can start immediately. Alternatively, provincial land is available that can be made available through an arrangement between the provincial and federal government in these regions. In Sindh, however, no such arrangement exists. If there are 5 million houses and Sindh has to contribute 20 percent of it, that's a million houses for which land does not exist.

BRR: Are you not finding the required support from the provincial government?

FI: It is in the benefit of the entire country, Sindh included, to make this project a success. Sindh government may have reservations but it is working on it. The construction sector boosts many other industries, linked to at least 60 sectors which provides jobs and creates economic value. Growth in construction will lead to a chain reaction and the whole economic cycle improves.

BRR: Have you launched any projects under the program-what challenges do you face as a builder?

FI: We have submitted proposals already for affordable housing and we are awaiting response. Land banks and land verification can be an issue but the biggest issue is infrastructure. If you look at earlier schemes which were typically undertaken in the outskirts of cities, the major issue became availability and access of infrastructure. Without the government provided the needed infrastructure and access to public utilities, housing construction specially in the outskirts where land is available will prove to be difficult.

At the moment, it is very difficult to get electricity connections in Karachi via K-electric. This is causing project delays. Several projects in Karachi have been finalized with customers awaiting possession but unavailability of electricity lines is causing hurdles.

BRR: Different estimates suggest the housing shortage is between 10-12 million. What is the basis of this number and is the PM's target of 5 million houses possible?

FI: One way to look at it is by doing simple math. The population is around 220 million and each Pakistani house typically has 5-6 members. This means, we require a minimum of 30 million houses and today, the housing stock is around 7-8 million. This leads to big and growing demand, a lot of which is met by slum and informal constructions. Knowing this, 5 million houses is not an unrealistic target and it is not impossible to achieve. But the homework has to be done. Land will have to be made available, the government will have to ensure infrastructure and the financial sector will have to lend its own support as well. If we can achieve even 50 or 25 percent of the target, it will be a good start.

BRR: What are some of the attractive features of the construction package announced by the government to builders?

FI: There is the no questions asked policy on the source of funds. The profits we earn from a project are official earnings and the FBR will not ask any questions regarding it. There are also tax benefits with the regime change into fixed tax regime. The most important factor for builders is consistency in policy and a smooth regulatory environment to work in. We don't want approval authorities to create issues later on. The positive development is that the approval process has been automized and all the structural procedures will take up to 45 days. There are 17-18 NoC requirements that builders have to typically fulfill. These will now be done in a one-step process-with total approval times coming down to a month or so against an earlier timeline of 6-18 months.

One reservation here is that the timeline for project registration is Dec-31. This is too short since we are just getting back on track after covid and 3-4 months have already lapsed without too much progress. Builders require more time. We have requested the government to extend the time period so more projects can be launched and more builders can participate. At ABAD, we are conducted seminars to educate and aware the builder community on the policies and incentives offered.

In addition, the financial and banking sector is gaining interest in real estate due to government's push. The SBP's mandatory targets will persuade banks to lend more mortgage finance which will allow more customers to buy new homes. On the demand side, there is affordability. Interest rates are low and the government is providing a subsidy which will bring down the financial burden on households. For a Rs 3 million house, the monthly instalment will come around to Rs 8-10,000 which a lower middle-class family may be able to afford. This is a big game changer for the country.

BRR: In this instance, would builders want to construct houses that are under Rs 3 million. Is there commercial viability for them?

FI: Very honestly, as a builder, there are very thin margins for homes that cost about that or less. But we want to work on these low margins and provide our support to the NPHP because we want this economic cycle to develop and multiply. We have to start somewhere.

Copyright Business Recorder, 2020