Lower middle income groups lack housing projects

Activists of Pakistan Tehreek-e-Insaf protest against hike in prices of fuel yesterday at a rally in Lahore. The government raised the prices of petroleum products by up to Rs4.71 per litre, citing the rising trend in the international market.Internews /KarachiIn Pakistan where roughly 40% qualify as ‘middle class’, there is no categorically defined income bracket for the group. However, this set is generally thought to comprise of people who have a combined household income of Rs50,000 per month. And the majority of them will never own a home. In 2013, the Pakistan Bureau of Statistics estimated, this income group spent around 35% of their monthly income on housing, typically rental. This is the second highest expenditure head after food. Even if the typical household budget allows for an increase of 10% to 20% where the property is owned, this income group cannot afford a payout higher than Rs21,000. The bad news is, there’s nothing to be had for this amount. “There are no new housing projects for lower middle income groups,” says Talha Farooqui who’s the managing director King’s Group Builders and Developers and unapologetic about the fact that his definition of ‘middle income’ differs so widely from the one espoused by the government. “No one is launching housing and apartment projects in the range of Rs 2.5mn to Rs4mn as there are already more than 20 projects, which are in doldrums and construction works have either slowed down or completely stopped.” Hemmed in by the sea to the south and the mountains along the Sindh-Balochistan border, the city could expand in one direction only: the north east. The shift began in the nineties and now, the path to Super Highway, the unofficial city limit, is littered with many housing projects that lie half-begun, half-done.  Across Gulshan-e-Maymar, North Karachi, Surjani Town, Scheme 33 and the Super Highway, there are some 25 projects in various stages of completion. But if there’s anything that Farooqui’s learned with the 25-odd residential-commercial projects they’ve done, it’s that the housing market - considered fail-safe in most economies - isn’t as attractive as it could be. “Whenever a new project is launched, the response is good and booking is more than 80% and in some cases 100%,” he says. “But the capacity to pay instalments among this set is very low due to high inflation.” In the last five years, according to official accounts, inflation has hovered around an average of 9% although independent economists estimate the real figure is significantly higher. Unlike the Musharraf government, the PPP government chose to minimise intervention in the money market with the result that the rupee-dollar parity changed dramatically. From Rs67 to a dollar in 2008, the exchange rate is currently hovering at Rs104. And this upward spiral has thrown most financial models into a tizzy. “Most housing projects for lower middle income groups have come to a halt as raw material prices have doubled, the cost of construction has increased, payments are delayed and - to top it all off - there’s the disturbed law and order situation,” says Anwar Gagai, chairman of the Association of Builders and Developers of Pakistan (ABAD). “Most serious builders and developers work with 25% down payment, with the rest payable on monthly or quarterly instalments over the two to three years the project takes to complete,” says a prominent builder with several projects. “Builders usually factor in a 10% to 15% increase in construction costs over the life of the project, from planning to completion,” explains Farooqui. “But since costs have gone up by almost 80% since 2008, many of the projects started then or earlier have run into serious financial problems.” Not only have the prices of steel, cement and concrete increased, even the taxes applicable on construction have risen. Since salaries have not keep pace with inflation, many among the middle income groups began defaulting on their payments.  Many builders slowed down work and projects, which were to be delivered ‘within two or three years’ have been pending for the last seven. The other way some builders hit upon to lure more buyers was by ‘disguising’ the true cost. “Several builders have come up with marketing strategies in which the total cost is not advertised,” explains Abdul Rasheed of the Maymar Group. But servicing the loan in addition to the instalment often becomes too much for the buyer, particularly since financial institutions charge hefty rates to compensate for the risk underlying the loan in the absence of adequate foreclosure laws. Truth be told, the mortgage market in Pakistan has not really matured.  While the high-interest rate environment makes loans unattractive for potential homeowners, the risk factor has banks plumping for government securities instead of home loans. Most financial institutions have small housing finance portfolios - as a percentage of the total loans - and even so, according to developers, prefer to lend to middle income or upper middle groups. HBFC spokesman Mian Abdul Qadeer said: “We’re facing difficulties in lending and recovery due to countrywide unrest, the terrible law and order situation and the decrease in the purchasing power of people.” The interplay of all these factors is straining living spaces at the seams. Munir Sultan is the chairman of the Federation of Pakistan Chambers of Commerce and Industry’s Standing Committee on Urban Development and he estimates the annual demand for housing at 1.5mn to 1.7mn units per annum. “Back in 2008, Pakistan was short of 8.8mn houses; now it’s short of 11.2mn units,” he said Significantly, the shortage hits the middle income groups the hardest. “For projects intended for the upper middle income groups - with apartment prices ranging between Rs10mn and Rs20mn the booking response is 100%,” shares Gagai.