- Housing will remain unaffordable despite concessions
A large part of Prime Minister Imran Khan’s strategy to tackle the economic fallout from the Covid-19 pandemic was to provide incentives to the construction industry for it to restart, create jobs and generate activity for ancillary businesses to take advantage of as well. The first of these incentives was announced in April with a substantial tax break for property developers. The latest addition to that is a package that includes a Rs30 billion subsidy meaning each of the first 100,000 houses that will be built under the Naya Pakistan Housing Project (NPHP), the PTI government’s flagship affordable housing project, Rs0.3 million of the cost will be picked up by the state. The proposed sizes of the houses that will be built under the NPHP are 5 to 10 marla, which according to even the most conservative of estimates would cost anywhere between Rs5 and 6 million. Therefore the proposed concession, at any rate, is still not enough to allow low-income groups to construct their ‘dream house at an affordable cost’. Commercial banks have been asked to get on-board as well, to provide financing at concessional interest rates to prospective buyers making it easier to raise the required capital, and considering how the SBP has temporarily deferred payments of principal amounts on outstanding loans, it would not be a bad deal. With banks being made to earmark 5 percent of their portfolio for the construction industry (around Rs330 billion), there will be a fair bit of scrutiny by their risk departments of those applying for loans, and of course, those with reasonable assets to pledge as collateral will secure financing more easily than those who do not. Even though the banks cannot charge more than the stipulated mark-up, they can choose not to give out too many loans out of fear that they might turn bad.
While the scheme is welcome, its advertised purpose, to provide low-cost housing to the masses, is perhaps a bit misleading. It is aimed at property developers who have the appetite to take a stab at a housing society venture at a government-discounted cost, the idea being that if enough investors bite, it could invigorate the economy. It’s not a terrible plan; it’s just not for the common man as is being portrayed.