ISLAMABAD: The mortgage finance market in Pakistan remains severely underdeveloped as the supply of housing for low-income groups in the country remains negligible despite strong demand, the International Finance Corporation (IFC) of the Bank Group has said. World Bank in a study.
The study titled “Pakistan Housing Finance – Is There a Business Case for Financial Institutions” went on to state that despite strong demand for housing, the mortgage depth ratio – the total volume of outstanding mortgages to GDP – remains low at 0.3%, well below the South Asian average of 3.4%
This reflects the lack of housing finance products, limited capacity of financial institutions, lack of long-term finance, and legal and regulatory issues, according to the study.
IFC undertook the study to highlight the volume of the mortgage finance market that could be tapped by expanding portfolios across different income segments in small, medium and large cities.
Most of the housing supply targets the affluent and affluent class in line with commercial viability and affordability. Only 1% of the housing supply caters to 68% of the population earning a monthly income of up to $188. About 56% of housing units serve 12% of the population with monthly incomes above $625, the study notes.
Housing supply in Pakistan at all levels and locations in 26 targeted cities is above $18,000 on average. A supply of affordable housing or apartments (up to 125 square meters) is as essential as affordable mortgage financing. Without an adequate supply of affordable housing, a “housing for all” program may be difficult to achieve.
“IFC’s research underscores the need to open up housing finance to different customer segments in Pakistan, which is a critical part of the country’s response and recovery from Covid-19. Boosting private sector participation in mortgage finance is also key to creating a new market to drive competitiveness, growth and inclusion,” said Shabana Khawar, IFC Regional Operations Manager for Afghanistan and Pakistan.
With a growing population of over 208 million people, Pakistan urgently needs new housing. Its housing shortage is estimated at around 10 million units and is expected to increase by 400,000 units per year. Growing urbanization, continued increases in the cost of land and building materials, and low levels of mortgage lending have also all contributed to the country’s housing deficit.
The study indicates that housing finance has the potential to grow in Pakistan and that with the right products, systems and finance, mortgage finance can be scaled up to 26 cities, with the potential to reach around 500,000 additional customers. in different income segments.
An additional $3.8 billion in loan volume can be created in the mortgage finance market by existing and new housing finance players, to serve around 500,000 customers, according to one study.
The Government of Pakistan is currently providing a Housing Funding Booster Grant under which housing up to 250 square meters and flats or flats with covered areas of up to 2,000 square feet are funded. by the FIs for the new owners. The financing features subsidized pricing of up to 9pc per year for a maximum term of 10 years and a maximum loan size of $62,500.
The supplemental grant scheme is complemented by the provision of low-cost housing to low-income groups by Naya Pakistan Housing and Development Authority (NAPHDA), where housing finance is available from financial institutions for a maximum amount of $16,875 for a unit of up to 125 square meters and apartment or apartment with a covered area of up to 850 square feet.
Posted in Dawn, September 29, 2021
