Pakistan is facing a real property crisis. There is an estimated shortage of more than one million houses which is likely to grow by 0.6 million every year. But mercifully the situation is not as bad as in India where the housing shortage is a staggering 40 million houses.
But it makes an interesting reading to understand the dynamics of the real estate market in Pakistan. One can safely assume that it is an underdeveloped market. As compared to developed economies of the world where the real estate is mostly financed through mortgage, it is a completely neglected sector in Pakistan. The presence of mortgage financing in the property sector is only a recent phenomenon and can be qualified as negligible. Even the present mortgage financing is volatile with floating interest rate, which means that the lender is unsure of the real terms and conditions of the loan and the banks are at liberty to change the terms and conditions in case of adverse interest rates subsequently. It is interesting to note that mortgage financing is more than 50 % of GDP in most developed countries whereas this ratio is less than 2% in Pakistan.
Another worrying factor of the real estate market of Pakistan is the poor land record maintenance. It is still manual and efforts to computerize it have failed in the past. Bribery is the order of the day in land record and Patwari is still the king who may temper with the record according to his sweet will and vested interests. There is also a risk of fraudulent transactions due to non-transparent land record.
Recently following a worldwide boom in international real estate business, property market in Pakistan also witnessed a sharp growth. One of the factors may also be the recent decline in interest rates. It is a standard principle of economics that in a falling interest rates regime, people tend to invest in real estate, thinking it to be safe and secure from inflation.
Another stigma on the property sector of Pakistan is the speculation mafia. With the drop of interest rates, people were uncertain about their investments in banks and withdrew to invest in the property market, which offered attractive returns overnight, thanks to speculation mafia. Many housing societies were formed to defraud people. Files were in circulation everywhere without any physical existence of the plots and houses on ground and many opportunists and speculators benefited from this panorama. And ultimately common man was the looser, who was left with the file without anything concrete as the housing societies suddenly started to disappear. One can easily remember the example of Bankers City Housing Society.
But at the end of the day, common man in Pakistan is dreaming for a small house of his own, which seems a distant dream. One way to overcome the shortage of houses in Pakistan may be the introduction of multistory buildings to avoid the heavy urban land cost. This will naturally lower the prices of houses and may bring these in the reach of a common citizen.
Government may devise a policy to encourage the participation of the private sector in the property market. But the discouragement of speculators is very essential. Moreover the Government needs to help the poorest segment of society through its sate owned organization called House Building Finance Corporation. Government may also identify the sate owned land in the urban areas and give it to the private sector on soft lease terms for building houses for the poorest segment of society. This will lower the high property prices in Pakistan and will help in maturing the property& real estate market on stable footing.
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