The house mortgage financing requires vital change(s) and/or improvements in Pakistan as far as the rate of mark-up based on system(s) of rental sharing(s) and quantum of monthly instalment(s), length of payments of monthly instalments as well as waiver of government duties/stamps and relaxation in documentation(s) are concerned. I would like to emphasise that the long-term house financing of 20 to 30 years, low rate of mark-up on house financing to the extent of 7% per annum, 0% excise duty on cement and other allied 40 industries needed changes along with other steps to promote the mortgage house finance in Pakistan.
Methods of calculation of equaliser based on rental sharing should be clear. The profit in mortgage financing should be based on "diminishing partnership."
In this regard the principle(s) laid down as reported in 2000 Shariah Law reports page 515 = PLD 2000 SC 760 in the reported case of House Building Finance Corporation v. Rana Mohammad Sharif and 4 others shall be followed.
The quantum of monthly instalment(s) is also a very important issue. The present quantum is not practical and not within the reach of the common man. The present house mortgage financing(s) is for the "haves" and not for the "have-nots." It is for the "privileged class" and not designed for the middle or lower class. For the low income people and/or middle class, the set monthly instalments are not within their reach.
The period of payments of mortgage financing should be increased, the long-term mortgage financing should be encouraged. It should be for a period of 29 to 30 years and/or should be based on not more than 7% mark-up rate for the purpose of calculation of rental sharings.
The long-term mortgage financing arrangement should be the quantum of instalments to the extent of and/or equal to monthly rent supposed to be given by the borrower, for example a person living in a flat, paying Rs 6000 as monthly rent.
If the instalments of mortgage financing will be of about 30 years and he obtained a flat of value of Rs one million and paid 10% down payment, the remaining of Rs 900,000 only as the principal amount will be spread upto 30 years and the borrower will pay an instalment of Rs 6000 per month.
Such type of mortgage financing should be encouraged, the government/semi-government and corporate employee(s), who are getting about 40% of their monthly pay as house rent and/or allowance(s) can enjoy the mortgage financing and right of ownership. The 40% house rent will be a guaranteed amount of payments.
The enjoyment of benefit of ownership, increase of price of property during the period of financing and decrease in the principal amount of mortgage financing will be an additional incentive to avail the mortgage financing.
In Pakistan there is need of seven million houses in the rural areas and (13) thirteen million houses are required in the urban areas.
If mortgage financing will be provided to five million houses in 3 to 5 years, the construction industry will get a boost and cement as well as allied industries will be strengthened. More than 10 to 15 million people will get employment directly and/or indirectly, if 100% or 75% excise duty is waived on cement and other allied industries or products. The cost of housing will be reduced from 15% to 25%.
The 75% or 100% waiver in excise duty will help other things also, the roads based on the material of cement and/or cement-based roads will be built instead of the present traditional material. This factor will also boost the cement and/or 40 allied industries. To face the challenges of 2005 and/or WTO, these steps are necessary.
The duties/stamps/registration fee(s) should be abolished in respect of registration of mortgage deed(s) or redemption deed(s), etc. Further, the monthly instalments should be treated as "expenses" and "tax be exempted." Moreover, the mortgage house should be exempted from property taxes.
The interest rate for the mortgaged financing will not be more than 7% per annum and the entire excise duty on cement may be waived and if the excise duty on the cement industries will be zero, the cost of the construction of houses and the residential units will go down by 15% to 25%.
Due to the lower rate and long-term house financing, if 20 million houses will be built in 10 years, there will be a boom in the construction industry, specifically cement and the allied industries will be revived. It can provide employment to 15 million people.
The requirement of 20 million residential units can also be achieved but for this purpose there should be a population control plan. The increase in the population growth should not exceed 1% per annum instead of 2.7% per annum, otherwise the whole housing scheme will not implemented. There will be a shortage of houses and residential units.
It is also proposed that funds and grants granted by the international donor agencies to build the roads from fields or farms to markets, will be utilised and these road, highways, motor-ways can be build by using cement instead of the present traditional method due to "zero rate" of excise rate duty on cement. The roads build by using cement will be cheaper than the roads build through the present traditional material(s). Further the indigenous cement industry will be strengthened.
Further the roads build by using cement will be more durable and useful due to the weather and climate conditions of our country and the cement-based roads will have water resistance also.
The monthly instalments should be secured by way of tendering of post-dated cheques by the borrowers, which may avoid default in payments and dishonouring civil liability as well as it is a criminal offence under Section 20 sub-section (4), (5) and (6) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and under Section 489-f PPC, laws which also require modifications.
These steps are necessary to increase the GDP and industrial development(s) in Pakistan as well as to create job opportunities. Further it will enhance the standard of living of the common people and grant shelters to the shelterless peoples, who having no room to live.
(The author is a practising banking lawyer.)