Welcome to Pakistan’s complicated world of rising home prices. Several variables influence whether property values are growing or declining, just like in any economy. Understanding the dynamics of the housing market in Pakistan necessitates a thorough examination of a variety of economic and social elements, from supply and demand limitations to macroeconomic policies and demographic shifts. This article will give a summary of current trends and insights into what has been happening and is now happening in Pakistan’s housing sector.
The housing industry in Pakistan continues to be undeveloped and undercapitalized. In recent years in Pakistan, incentives are aimed at the lower middle class to purchase a house, leading to a rise in the number of mortgage loans acquired overall as there has already been a healthy demand from upper-middle-class families. Although this consequently has resulted in the rise in prices of homes making it difficult for the lower and middle classes as they are stuck in the bubble. In Pakistan, mortgage loans are often only given to the highest earners, according to a World Bank assessment, excluding people who have the greatest need for house financing. The Pakistani government established the Exim Bank of Pakistan (EBP) and Pakistan Mortgage Refinancing Corporation (PMRC) in 2015, both having an authorised paid-up capital of Rs. 10 billion. (Tahir, M. (2020, December 31). They were established to advance, develop, and enhance housing finance to boost the public’s access to affordable housing. This programme included both conventional and Islamic financial models.
As per Pakistan Economic Survey for FY21, the construction industry’s share of GDP was 2.5%. In addition, 7.71 per cent of Pakistan’s labour market is involved in the construction industry. (State Bank of Pakistan. (n.d.). Www.sbp.org.pk. Retrieved April 7, 2023) Banks and other lending organisations receive hundreds of requests for house loans each year, but the percentage of instances where the money is not repaid is significantly bigger.
According to Shahid, the average loan amount granted by banks is still in the range of 2 million to 8 million rupees, which is still significantly less than the price of the typical home in a large urban area. As a result, the majority of banks and lenders demand that the borrower make a sizable down payment on the mortgage.
The SBP estimates that Pakistan’s affordable home prices to household income are 20:1, which is substantially higher than the worldwide average of 5:1. As a result, slums and shanty communities are home to more than half of the nation’s urban population.
Pakistan’s changes in house prices have been the most compared to Asia. These changes are due to different policies taken by the Pakistani government to analyze the inflation occurring and to regulate the market accordingly. According to the SBP, Pakistan’s informal economy accounts for a sizeable portion of its GDP—between 70% and 91%.
A significant portion of the unreported gains is attributable to the country’s real estate market, primarily as a result of tax regulatory oversight and extremely low official property valuations. These aspects of the housing market make it easy for individuals to hide their wealth and sources of income and minimise their tax liabilities.
In 2016, the federal government adopted an amendment to the 2001 Finance Bill to control the market with rates established by the DC. Important restrictions were implemented by the Finance Act of 2018 to reduce instances of using the real estate sector to evade taxes and commit money laundering. This was done to stop unregistered and undocumented investments but hindered the market instead. As the Government mainly maintains a no-regulation policy about the source of funding, this industry has long been the preferred location for hiding unreported income. This has caused a real estate bubble to form.
From 2010 to 2020 house prices in Pakistan rose by about 3.1% per year. Development economists give more economic and social significance to housing finance while it remains undeveloped and undervalued in Pakistan. By December 2021, the SBP encouraged banks to contribute 5% of their private sector advances for housing and development financing. State Bank held meetings with banks to finalise their action plans for achieving the required housing and construction funding objectives. By the end of 2021, banks’ credit for housing and construction financing was expected to total Rs. 384 billion.
There have been several causes behind Pakistan’s housing crisis. These include the lack of a common record of land and right to property, strict rules for site development, a lack of financing that has priced out lower-to-middle-income groups, and banks’ reluctance to increase the volume of mortgages they hold because of lax legal certainty and unclear title deeds.
Despite recent significant development, Pakistan’s mortgage sector is still quite limited. According to estimates from the Global Property Guide, its size in 2018 was around 0.3% of GDP. The ambitious Naya Pakistan Housing Plan (NPHP) initiative, an affordable housing programme for low-income households, was introduced in October 2018 by former prime minister Imran Khan in an attempt to ease the housing issue. At least five million affordable homes will be developed nationally as a result of this initiative.
Although Pakistan’s property market is slowing down as it declines from an unsustainable peak, it has not yet crashed. Many property purchasers are becoming more frugal due to rising inflation and worries about an impending recession. It implies that a growing number of purchasers will withdraw from the market.
For Pakistan’s lower and middle classes, finding an affordable home continues to be a distant possibility. People cannot purchase a home with a lifetime’s worth of money when prices continue to climb steadily as a result of market speculation. Due to the lack of foreclosure rules, banks refuse to process new applications, making it difficult for the general public to get housing financing. Pakistan needs to take quick initiatives now to improve housing financing by improving public access to it