Pakistan's housing crisis deepens with country's financial woes

Karachi

NOWHERE is Pakistan's housing shortage more acute than in its most densely-populated metropolis of Karachi, where over half of its 15 million residents live in slums.

South Asia's second-largest economy is facing a housing shortfall of 10 million units and needs to build about 700,000 houses every year to fill that gap as its population continues to grow. That has spurred Prime Minister Imran Khan to pledge to build five million low-cost homes in five years in the country of more than 200 million people.

But the administration of the former cricket-star has so far been sparse with details as it struggles with Pakistan's latest in a long-line of financial crunches and negotiates its 13th International Monetary Fund bailout since the late 1980s.

The materialisation of Mr Khan's flagship housing venture will require more than US$17 billion annually, said Arif Habib, a Karachi-based property tycoon. "This project looks ambitious, but is very much doable," he said in Naya Nazimabad, where he is building a US$2 billion gated estate in north Karachi.

It will likely need government subsidies and support for developers like Mr Habib, who are not likely to be persuaded by the limited returns from building low-income housing. That is money the resource-constrained government will find difficult to muster.

It's not clear whether Pakistan's banks have enough liquidity for housing financing, especially given their non-performing loans grew 2 per cent to 637 billion Pakistan rupees (S$6.3 billion) during the quarter ended September.

The government also needs to address key regulatory impediments to allow lenders to foreclose a property in case of default, according to Saad Hashemy, the chief economist at Karachi-based Topline Securities.

"Mortgages are certainly an aspiration for all banks in Pakistan as it is an under-served area and essential for economic growth," said Sima Kamil, the CEO of United Bank. Mr Khan, however, will need to create an environment that allows lenders to lift the availability of mortgage finance to a wider population, she added.

In Pakistan, the current rate of mortgage housing finance varies from 13.7 per cent to 14.7 per cent for 20 years. That puts it out of reach for people like Azizur Rehman, who started building a small two-storey house in the impoverished port-side Keamari district of Karachi 15 years ago that he is been unable to complete. "The reason is money," said the 42-year-old school teacher, who has so far borrowed 3.5 million rupees from family and friends after banks rejected his mortgage applications. Mr Rehman needs another 600,000 rupees to recognise his dream.

Muhammad Younus, a director at the Urban Resource Center in the city, said more than 500,000 people in Karachi are homeless. For bankers, the main issue is the wide risk of default, he noted. "In many Asian countries, housing loans are never returned especially if the borrowers are from low income or poor class," Mr Younus added. "The loan often fails and is never paid back."

Availability of land in Karachi is also a contested issue. About 80 per cent of the megacity has been illegally encroached upon after decades of poor planning, criminality and inadequate coordination between regulatory agencies, according to Karachi mayor Waseem Akhtar, who's part of the Muttahida Qaumi Movement (MQM) that's in a federal coalition with Mr Khan.

Ethnic clashes and gang wars have festered in Karachi since 1947, when the first wave of migrants poured into the city following Pakistan's violent partition from India.

In the 1980s, the Afghan war sent thousands more fleeing from the border regions to the city. "The influx is too much," added Mr Akhtar.

One of Mr Akhtar's drives has been to push for the demolition of illegal structures across Karachi. Outside his office, at least three bulldozers were preparing to bring down illegally erected shops long established on public land. That has caused widespread anger among traders, after the Supreme Court last month backed Mr Akhtar and Mr Khan's push.

As many as 3,000 shops in Karachi have been destroyed and thousands more are on the line, said Atiq Mir, chairman of the All Karachi Tajir Ittehad that represents around 400 trade groups.

It's already come at a political cost. Once a staunch supporter of Mr Khan's ruling Movement for Justice party, Zafar Shah, a 30-year-old garments retailer, said that he will never again vote for Mr Khan after his shop at the British-constructed Empress Market was torn down last month.

"We have lost our business, we are jobless now," added Mr Shah, a father of six. "They keep talking about giving us alternative places for shops that have not been identified yet." BLOOMBERG