Pakistan currently faces a shortage of 10 million housing units and the only solution could be home financing.
The situation will only deteriorate as population keeps increasing. While realty sector of Pakistan is expanding and recording high growth rates, there is a shortage of credit for housing, especially for low to middle income housing projects. Various mortgage financing schemes that have been launched only recently don’t cater to low to middle income households.
Keeping in view this, Pakistan has started to take necessary steps in decreasing the housing deficit that exists in the country. According to a news report, National Bank of Pakistan (NBP) President Saeed Ahmad stated that World Bank would provide funds for housing projects that would reach banks through Pakistan Mortgage Refinance Company (PMRC).
Functionality of PMRC
PMRC has been named as a Development Financial Institution by Federal Cabinet. It was set up by the Government of Pakistan and commercial banks with technical support from International Finance Corporation and liquidity aid from World Bank. PMRC was incorporated with Securities and Exchange Commission of Pakistan (SECP) in 2015 to promote, develop and improve housing finance market in the country.
For this reason, on 14th November, Pakistan Mortgage Refinance Company (PMRC) started its operations with initial funds of Rs.6 billion. PMRC will issue bonds that would attract larger longer-term funds for housing. According to another news report, for some time banks have been hesitant in providing long term loans because of unavailability of funds. This venture has come as a measure for bridging the gap between demand for mortgage financing and the credit available for this.
According to official statistics disclosed by PMRC, the company has Rs.6 billion in funds with Rs. 1.2 billion contributed by the federal government. The company has been designed to ‘provide a roof for every Pakistani and develop a capital market’. The capital market will be created by way providing a safe channel for investment in pension funds, insurance companies and long-term investment assets. PMRC provided loans will be given to the end consumers at the same rate as the company loans these to banks.
Statistics for Pakistan
In a report published earlier in July by the State Bank of Pakistan (SBP), credit to households in Pakistan accounted for less than 0.2% of total GDP in 2015. In another earlier report by SBP, Pakistan’s housing-to-GDP ratio stands at a grim 0.7%, which is the lowest ratio in the world. This statistic hasn’t changed in over two years and while there is so much potential in the sector, it remains untapped. As per World Bank statistics, for most developed countries this ratio stands at 50%.
Problems with low-housing finance
Most mortgage financing plans are designed keeping in view a certain salaried class in Pakistan and doesn’t bring into consideration majority of people who fall into low to middle income group.
There are various problems associated with the absence of sound mortgage financing, especially for low to middle income housing projects. The sprawling of illegal settlements pose both social and economic costs to the country. Other costs associated with unavailability of credit for housing are associated with development; primarily sanitation and sewerage system, road network, and overall planning of the city.
To reduce these problems and tap into the realty sector of Pakistan it is essential that housing units are financed by the banking sector that primarily address people with low to middle incomes. There needs to be a continuous system of creating affordable housing in the country and PMRC is the institution that will ensure this!
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