On April 17, 2019, Prime Minister Imran Khan launched the Naya Pakistan Housing Program (NPHP). This is an initiative through which, in an ambitious timeframe of just 5 years, the government plans to build 5 million houses. The main purpose behind this low-cost housing project is to provide shelter to the underprivileged segment of the society. According to the latest updates on Naya Pakistan Housing Program, the government of Pakistan has set up a Chinese prefabricated housing plant to speed up construction of these housing units. Mr. Imran Ali Khan, who is the CEO of EMPG (Emerging Markets Property Group) and co-founder of Zameen.com, discussed NPHP on Zameen Interviews, a new platform where prominent personalities share their insights and candid views on societal issues, current affairs and also give expert real estate advice.
EMPG owns and operates leading property portals in Pakistan, the UAE, Saudi Arabia, Bangladesh, Morocco, Algeria and Tunisia. In Pakistan, the company runs Zameen.com and its sister concern, Zameen Developments. Mr. Imran Ali Khan is widely hailed as a real estate expert in Pakistan.
In a series of questions and answers, this blog will share Mr. Imran Ali Khan’s thoughts on NPHP.
The interview starts with EMPG’s CEO making a case for a national-level institute for the program. You can watch the complete interview:
“This initiative should be at the national level,” he began, adding, “a separate institute should be made, which is under discussion these days.”
“I think that it is a good initiative,” Mr. Imran Ali Khan further stated. “And a separate institute should be made and it should be independent so that it does not become anyone’s political agenda or anyone’s political victory. It should run independently of politics.”
“The main challenge remains as to who will get to run it. It should be ensured that there is no political influence, only people on merit – those who are capable should be part of it. You will find people who are technocrats, who are very experienced (people who know what is going on in the world), people who are aware of what happened in Brazil, in India and what happened in the Philippines, for instance. You need these kinds of people and also those who have done this kind of work on an operational level. Trying to make something work only by making models will be very tough. When you take a model of another country and try to copy it here, you will face new challenges every month; you have to localize it.”
DO YOU BELIEVE THE SUCCESS OF THE HOUSING SECTOR CAN IMPROVE THE CURRENT ECONOMIC SITUATION?
To this question, Mr. Imran Ali Khan responded by shedding light on how the construction industry will benefit from the Naya Pakistan Housing Program. “Many industries will be involved and there will be more than 40 industries involved in it. If you look at Pakistan’s housing construction industry, it contributes somewhere around 1% in the total GDP. Other countries may reach 4%, 5% or 6% and this is only regarding the housing construction, not the overall construction. Hence, there is a lot of contribution. Secondly, another initiative of the government is to create jobs. So, if the housing initiative is a success, the job creation initiative will also benefit. In fact, it may be addressed completely if the target of 5 million houses is achieved. It will definitely be beneficial, all industries will reap benefits. The overall economy will benefit; it will receive an immediate boost.”
Mr. Imran Ali Khan also shared his reservations about the ambitious nature of the Naya Pakistan Housing Program. He commented, “One thing should be considered, that the number 5 million is too big, in my opinion. I think it is a good initiative. It should be fully supported, but in my opinion, even if they build 1 million houses in 5 years, that would be a great start.”
WHAT CHANGES WOULD YOU RECOMMEND IN THE HOUSING SECTOR’S LEGAL AND FINANCIAL FRAMEWORKS OF PAKISTAN?
“The concept of home loans is very uncommon, almost non-existent,” Mr. Imran Ali Khan told Zameen Interviews. “One of the biggest reasons is that in foreclosure it normally takes six to seven years in the court. Foreclosure means if one has mortgaged property by taking a loan from the bank, and a person does not pay for the property, then it will take around six to seven years for the bank in eviction or go through the entire process of foreclosure. The laws have been made, its implementation or the process sometimes takes very long. Hence, something should be done related to foreclosure very soon. And it has other forums too, not necessarily legal that you have to go to the court. Forums other than the court can also be made, like they were made in India in 2002-2003. So, it has many models, which are in the knowledge of the law-makers. I think if the work on this is done swiftly, the entire system of home finance (that can work because of these reforms) will take benefit from it.”
Mr. Imran Ali Khan also discussed other laws and legal issues related to the real estate sector of Pakistan and highlighted the fact that there is no real estate regulatory authority in the country.
“If you talk about other legal issues related to real estate, there is no regulatory authority here. The regulatory authority could be created. It is not just the regulation—that you only have to look at the by-laws. It’s the entire process that needs scrutiny. This will include many things besides regulation and by-laws. Pricing, for example.”
Mr. Imran Ali Khan stated the example of Dubai. He said, “If you go to Dubai, it has the most advanced and well-developed regulatory authority in our region. It has evolved greatly. It has tenant protection as well, that (any landowner) does not suddenly increase the rent. If it (the rent) is too low, then the landlord protection is there as well. Hence, many things come under the regulatory authority, which will regulate this entire thing by which the overall industry will benefit in the long term.”
Recently, the federal authorities have finalized Real Estate Regulation and Development Bill 2019, under which the Real Estate Regulatory Authority (RERA) will be formed.
WILL THE INFLUX OF 5 MILLION HOUSES CREATE A SURPLUS OF HOUSING UNITS IN THE MARKET?
Discussing how this will affect the market, Mr. Imran Ali Khan said, “It is a simple dialogue of supply and demand. If we have supply at the moment and the demand matches it. Take the example of cement; if you are getting a bag (of cement) for PKR 550 and all of a sudden you require a lot of cement and it is not available in the market, the prices will increase. But how much will the price increase? If the cost of your (cement) import from China, the Middle East or any other country is supposedly PKR 700-750, it (the price of cement bag) will not increase more than that, because otherwise it can be imported at the same price.”
Referring to the impact on the housing market with respect to NPHP, Mr. Imran Ali Khan said, “Even if there is an impact of this kind, it will be a short-term impact.” He explained it with an example, “If the demand, for one thing, is increasing and the industry is unable to fulfill its supply, the industry will itself invest in it, increase the capacity. There will be foreign investments when people from abroad would see that this product is in demand in this country, everybody will be attracted. They will come here and they will also work on this. I think even if any impact is observed, due to the price rise, things will get normalized. Market forces will ensure that if the supply is less, then the supply will increase because there is a market for it… and the market for it will be sustainable. If this (Naya Pakistan Housing Program) starts working, and every year 5 lac or 6 lac houses are being constructed, then it is a sustainable thing. If the projections are apparent to people that this will be done every year, then it will be worth investing in.”
DO YOU AGREE THAT THE INCREASED DEMAND FOR HOUSING WOULD RESULT IN HIGH MARKET PRICES, ULTIMATELY MAKING IT DIFFICULT FOR AN INDIVIDUAL TO MAKE ANY PURCHASES?
“The demand for things will not increase in a day or altogether, the demand will increase gradually. Initially, there might be fewer houses… it will not be like there will be a million houses in the first year and a million in the second year. So, there will be fewer housing units in the first year, then a few more in the second year and then a few more (houses) later on,” he stated.
“And when this process will start, it will not be as if the prices will double all of a sudden…(for example) it is near impossible that you are unable to find any bricks and that all the bricks are being used (in constructing houses). So, gradually when it (house construction) increases, people’s capacity also increases. This is not that big of a concern. If it increases up to 10% to 20% it will also be normalized in the long term. By long term I mean if the prices increase this year, then by a maximum period of 4 years, the prices will return to normal.
WILL THE STATE BANK’S REVISED MORTGAGE POLICIES IMPROVE THE ECONOMIC SITUATION?
EMPG CEO Mr. Imran Ali Khan, in his interview with Zameen.com, appreciated the State Bank’s mortgage policies. He said, “For mortgage, you will have to see the stability of the interest rate. So, I think, in the short term, there are a lot of challenges in the mortgage sector. The State Bank has taken a very good initiative. They are giving it on properties of worth PKR 25 lakh, but then the issue arises that the banks are reluctant to deal with it. Because the bank needs people who get salaries in their bank accounts. If a person is working at a shop receiving PKR 25 to 30 thousand in cash from the shop owner, the banks neither understand him nor do they want to work with him.”
WHY DOES THE CONCEPT OF MORTGAGES REMAIN RELATIVELY UNSUCCESSFUL IN PAKISTAN?
Mr. Imran Ali Khan discussed how religious beliefs are a major factor that makes the concept of mortgages quite unpopular. He said, “Because there is a religious influence on banking and savings in our country due to which people don’t prefer to have an interest rate. Even in saving products, they prefer the committee system. And through the committee system, they save money.”
“We conducted a survey in our office on saving products, where 78% of the people gave the reason that since this is un-Islamic to put money in a saving deposit on which you get a fixed interest (therefore they are a bit reluctant about it),” he continued.
Mr. Imran Ali Khan suggested an alternative – Islamic banking. “But luckily for that, we have Islamic banking options,” he said. “So, if those concerns are addressed, I think it is a very good thing that you can own a property in the same amount as of rent. You have to live somewhere, so I do not see any issues with it.”
DO YOU THINK THE STATE BANK’S REVISED POLICIES WOULD LEAD TO A SITUATION SIMILAR TO THE 2008 AMERICAN FINANCIAL CRISIS?
Mr. Imran Ali Khan started off by explaining the global financial crisis of 2008, “Everyone was buying houses on mortgage… and not just one. People were buying 2,3, even 4 houses on mortgages. So, what happened was that an artificial demand was being created. A single person only needed one house on a personal level, but because the mortgages were readily available and very cheap. So, there was an inflated bubble. When it crashed, people had no money to pay. Because of all this, the real estate market crashed. So, this was the reason it was removed. Over here, we are talking about something else. Here we are saying that there is a person who is poor and who can’t afford, you are enabling him to buy his own house through mortgage.”
DO YOU AGREE THAT A DEFAULT HAPPENS WHEN DEBT REPAYMENT CAPACITY OF THE BORROWER IS NOT CONSIDERED WHILE ISSUING LOANS?
“Even though the real estate sector in Pakistan is small, there are a lot of non-performing loans here. The reason is there is no accountability. If the foreclosure framework is good and the legal structure is strong, then the ones who are not paying are held accountable… and it will result in foreclosure. The property will be confiscated in six to 12 months if the amount is not being paid back. This will make the bank comfortable. It can’t be said that the banks are being forced into this, but, eventually, a bank can be legislated to have home finance as 5% of their financial books. It has been done in other countries as well. Banks, also, will have to offer better options to the developers, builders or even consumer house finance, that people should be given loans.”
IF YOU WERE GIVEN THE OPPORTUNITY TO HEAD THIS PROJECT, WHAT STEPS WOULD YOU TAKE TO ENSURE TRANSPARENCY AND SMOOTH PROGRESSION?
“I think the most important thing is to have the right process and system. Depoliticize it, make systems and processes. If a department fails in any company or any government, it fails because it neither has a system nor a process. I personally feel e-governance should be invested in. You should build all the processes and systems through e-governance. It will bring transparency which everyone will be able to witness. If someone is submitting an application or a complaint, you can see the entire process. You can also see that the answers that were supposed to be given in two to four days haven’t been given. All these things can be measured. So, it has to be driven by systems and processes. It is not only for the Naya Pakistan Housing Initiative. This is also true for all initiatives. Work is being done everywhere. But it could be done with more speed. That is probably the answer to many issues that we face in Pakistan right now.
Although the low-cost housing project of Naya Pakistan Housing Program is currently in its initial stages, the first two phases of registrations have already been launched. In case you haven’t registered, you can easily do it online.
The deadline for the online registrations for Naya Pakistan Housing Program is October 15, 2019.
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