EDITORIAL: The International Finance Corporation’s (IFC’s) latest study of the housing sector found nothing that everybody didn’t already know; that supply of units for low-income groups remained “negligible” last year despite “high demand” primarily because “mortgage financing remained equally underdeveloped”. Its latest report ‘Pakistan Housing Finance – Is there a business case for Financial Institutions?’ also finds the same problems and makes the same recommendations as everybody who’s looked into this sector has over the years. And all we need to do is get more public and private financial institutions into the business of mortgage lending and the problem will at least begin to go away. If only it were as simple as that.
It’s not that banks have not been flush with liquidity more often than not in the years that efforts to promote a mortgage culture have come to naught. It’s that when this sector was really on the verge of taking off in the Pervez Musharraf’s era, no less than the highest court of the land shut the door on foreclosure laws for reasons more suited for another debate at another time. But since then banks have avoided lending for housing like the plague because even a cursory look into the books of the House Building Finance Corporation (HBFC) is enough to show how high the default rate in this business is. Any form of lending that makes recoveries legally complicated and painful doesn’t fit very nicely with banks’ risk management matrices, so they can’t really be blamed for giving this sector a very wide berth all this time.
This government ran into this problem after the PM had made tall claims about the Naya Pakistan Housing Authority and all that, and did make some advances in terms of developing foreclosure laws that banks could work with, even brought the Real Estate Regulatory Authority Act, and went as far as forcing commercial banks to lend to housing. But things have only barely changed for the lower-, especially lowest-income groups. Plus, it’s brought two problems that threaten to make the situation downright untenable in not too distant future. The rush to develop housing led to the smart idea about the amnesty scheme that lured black money into construction and real estate with no questions asked. That’s when everybody in government first learned about the 40 or so sectors associated with real estate and wouldn’t stop harping about it. But the amnesty opened the floodgates of suspect money into everything associated with these sectors. And the problem with artificially stimulated demand is that it leads to textbook rise in prices, especially when so much money comes so quickly.
So prices duly went through the roof and made housing even more unaffordable for people with less money, and no black money at all who got completely left out of the bonanza. Also, despite arm-twisting the banking sector to lend to the less fortunate, no money has yet reached the very bottom of the food chain because the poor lot that dwells there does not even have the luxury of bank accounts. At the end of the day the rich, who were forced to hide their money abroad, grew richer and real estate and construction got priced out of the reach of most common men. And the dream of the Naya Pakistan Housing Authority, etc., is fast becoming a nightmare of ordinary people who now face higher rents as well because of the way prices have been driven up.
Till these structural problems are resolved, housing will always remain a pipedream; for politicians as well as ordinary people. At the heart of the problem is the unavailability of an effective lending regime. It’s a shame that we’re still struggling to work out mortgage financing and foreclosure laws and there are more new housing projects under way in and around India’s capital city alone than all of Pakistan. Even if all that comes of this administration’s promises of providing millions upon millions of very cheap houses to the very poor is formulation and implementation of laws that provide housing credit to the working classes and nothing more, it would still be something to write home about.
Copyright Business Recorder, 2021