Monday, July 27, 2020

Naya Pakistan: Low-Cost Home Loans and Construction Subsidies to Boost Economy

Pakistani Prime Minister Imran Khan has recently announced a new housing construction incentives package that includes down payment assistance and expansion of home loans portfolios by commercial banks at discounted rates for affordable housing for the poor. Shariah compliant financing is also included in it. Pakistan’s mortgage finance to GDP ratio is just 0.25%, among the lowest in the world, according to the World Bank. The average for South Asia 3.4%.  New housing drives a large number of sectors of the economy from banking and building materials to construction and manufacturing of furniture and home appliances. These incentives are designed to stimulate the economy, boost employment and deal with the growing shortage of affordable housing in the country.

Naya Pakistan Housing:

Pakistan government's Naya Pakistan housing program offers Rs. 33 billion in direct subsidies for down payments for the first 100,000 applicants, according to media reports. In addition, the commercial banks are required to allocate 5% of their portfolio amounting to Rs330 billion for construction activities under this program. Pakistan’s mortgage finance to GDP ratio is just 0.25%, among the lowest in the world, according to the World Bank. A person earning Rs30,000 to Rs100,000 can build a house on a 5-marla lot with the mortgage financing at 5% and that of 10-marla at 7%.

Importance of Housing:

New Housing Starts are considered a reliable economic indicator in any country that collects routine economic data. Housing sector drives a large number of other sectors of the economy from banking and building materials to construction and manufacturing of furniture and home appliances.

These sectors, in turn, create jobs, improve people's living standards and widen the tax base. In the United States, for example, homes are the biggest contributors to net worth of Americans. Home equity loans allow people to take out loans for other purposes, including education, business startups and home improvements.  Hence, the governments' interest in pursuing pro-housing policies that ensure secure property rights, set aside land for housing and require banks to offer low-cost home loans.

Secure Property Rights:

Secure property rights are a pre-requisite for a thriving housing sector. Hernando de Soto Polar, Peruvian economist known for his work on the informal economy and on the importance of business and property rights, told Reuters back in 2016 that “(T)here is no such thing as an investment without property rights that are negotiable and transferable”.

In the United States, the world’s largest economy, the most important source of funds for new businesses is a mortgage on the entrepreneur’s house, de Soto wrote in his book “The Mystery of Capital”. He says that secure property rights for world's poor could unlock trillions in 'dead capital'.

Unfortunately, Pakistan's land title system is among the most corrupt in the country. A patwari, the title for the official keeping land records, is among the most resourceful government officials in much of Pakistan.  Patwaris have a well-deserved reputation for corruption. Legally protected and enforced property rights are the key source of the developed world’s prosperity, and the lack thereof is the reason why many nations remain mired in poverty, de Soto has argued.

Housing Finance:

Construction loans and mortgages at reasonable rates are essential for people to afford to build and own houses. Policies promoting discount loans and mortgages are the cornerstone of housing policies in the developed world.

Typical Low Cost Home. Source: Dawn 
In the United States, government-backed mortgage giants like FNMA (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp) deploy vast resources to buy mortgages and ensure liquidity in the mortgage market. When lenders make loans for housing based on FNMA or Freddie Mac rules, they are confident they can sell in a highly liquid mortgage market.

Other developed countries also support mortgage financing in similar ways to make housing affordable.  Pakistan’s mortgage finance to Gross Domestic Product ratio is just 0.25%, among the lowest in the world.  The average for South Asia 3.4%. It's much higher in developed nations. It is over 65% in the United States, 40% in France and 20% in Italy.

Mortgage Debt to GDP Ratios in Developed Nation. Source: Urban Institute

Land at Discount Rates:

Land is a significant part of the cost of housing, particularly in or around big cities where land is highly appreciated. The government can help reduce this cost by offering land at discount for affordable housing.  There are news reports that Pakistan government has identified tracts of land to offer it to builders at discount rates for affordable housing.


Naya Pakistan housing program offers Rs. 33 billion in direct subsidies for down payments for the first 100,000 applicants and requires the commercial banks to allocate 5% of their portfolio amounting to Rs330 billion for construction activities. Shariah compliant financing is also included in it.  It will boost Pakistan’s mortgage finance to GDP ratio which is only 0.25%, among the lowest in the world, and lower than 3.4% for South Asia. New housing drives a large number of sectors of the economy from banking and building materials to construction and manufacturing of furniture and home appliances. These incentives are designed to stimulate the economy, boost employment and deal with the growing shortage of affordable housing in the country.

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Seth M. said...

Government priorities are wrong.The foremost basic need of a person is food and clothing and not shelter ,which comes in after the first two needs have been fulfilled. The government should focus on reducing inflation and unemployment, first,so that the common man can begin to think of owning a house of his own.

Riaz Haq said...

Seth: "Government priorities are wrong.The foremost basic need of a person is food and clothing and not shelter ,which comes in after the first two needs have been fulfilled"

Food and clothing require income. Housing stimulates the overall economy and creates employment and income for people.

Riaz Haq said...

‘Pakistan's economy may return to positive trajectory this month’
Finance Ministry predicts end to economic downturn, also sees rising inflation

The Finance Ministry said that, in the previous fiscal year, there was small but positive growth of about 1% in the first quarter. The economic growth accelerated in the second quarter to 2.58%. But it turned negative in the third quarter of the last fiscal year by 0.19% following the COVID-19 pandemic. In the fourth quarter, the economy contracted 4.9%.

Over the complete FY 2019-20, the MEI showed average growth of a negative 0.4%, which coincides with the provisional Gross Domestic Product (GDP) growth published by PBS, it added.

The Ministry of Finance has also said that it was expected that exports would further recover in July and may find themselves within a broad margin around $2 billion to $2.1 billion. Similarly, it was expected that imports would recover in June and July and may find themselves within a broad margin around $3.5 billion to $4 billion.

For July 2020, due to Eid and revival of economic activities, it is expected that workers’ remittances may remain within the range of $1.8 to $2 billion.

The ministry said that domestic economic activities had also accelerated with many businesses beginning operations in accordance with the SOPs issued by the government, and that restaurants and educational institutions were expected to soon follow suit.

The ministry has also highlighted the impact of locust attacks on crops, saying the peak period of the attacks was not yet behind us.

According to the Q Block, in addition to COVID-19, the desert locust situation has worsened and is likely to be at its peak between July 15 and September 15, which will cause crops to suffer.

For this fiscal year, the agriculture sector’s growth is targeted at 2.8% on the basis of better growth in crops, livestock, fisheries and forestry. A meeting of the Federal Committee on Agriculture (FCA), held on July 8, 2020, reviewed inputs’ availability for the 2020 Kharif Crop. It was informed that weather patterns and the availability of water, seed, fertilizers and machinery would be better as compared to last year.

The Consumer Price Index (CPI) inflation rate was recorded at 8.6 year-on-year in June, 2020. Petroleum prices, which had fallen sharply during the last couple of months, again increased during the last week of June, which will have an impact on next month's CPI, said the Finance Ministry.

The deflationary effect of the decline in oil prices was compensated by a depreciation of the USD/PKR exchange rate. Historically, a combined increase of commodity prices and exchange rate depreciation of 1% increases the CPI level by around 0.9% in the long run, said the Finance Ministry.

However, the money supply was increasing in the economy. In the last fiscal year, the M2 increased by Rs3.1 trillion as compared to Rs 1.8 trillion, showing growth of 11.3%. Net Foreign Assets (NFA) of the banking sector also increased by Rs 992.2 billion against the contraction of Rs1.3 trillion in preceding year. Net Domestic Assets (NDA) increased by Rs2.1 trillion, showing growth of 11%.

The Finance Ministry said that the growth rate of M2 was still above pre-corona levels. This is mainly due to increased pace of government borrowing for budget support, as the government was supporting economic activity to curb deflation due to COVID-19. Also, in June, the growth rate of government borrowing remained above pre-crises levels. Historically, an increase of M2 by 1% tends to increase the CPI level by around 0.35% in the long run.

Anonymous said...

Dear Sir

Pls check the latest news mashallah now Pakistan is producing ventilators . A manufacturing plant of ventilators was setup under the supervision of Pakistan army in collaboration with PTI government .

It is a very good news .


Riaz Haq said...

#Steel bars get pricier amid #construction boom in #Pakistan. Price hikes came at a time when #economic activities worth Rs1 trillion & Rs100 billion had been generated in Punjab & Khyber Pakhtunkhwa, respectively, in housing and construction projects.

Manufacturers of quality steel bars increased their prices by up to Rs3,000 per tonne in November on the back of rising raw material costs in world markets and growing strength of the rupee against the dollar.

On Friday, Prime Minister Imran Khan was informed in a meeting of the National Coordination Committee on Housing Construction and Development that 6,000 apartments would be constructed in Karachi under a project called Pakistan Quarters. In the first phase, work would start on 700 residential units at a cost of Rs4 billion over the next three months.

Another meeting on the Karachi Transformation Plan (KTP) presided over by the premier was informed that more than 100 projects worth Rs1.1 trillion have been planned under the programme.

Mughal Iron and Steel Industries Chief Operating Officer Shakeel Ahmed said the company pushed up the price of good quality steel bars by Rs3,000 per tonne in November to Rs114,500-115,000 per tonne.

Ruling out the possibility of increasing the price of long-steel product to cash in on the rising demand in the northern areas owing to construction activities, he said raw material prices have risen to $370 per tonne from $330 per tonne in the last one month. It happened due to various reasons like port congestion and the fear of further lockdowns in world markets.

The management of Mughal Iron and Steel Industries had informed analysts of brokerage houses that the Naya Pakistan Housing Programme (NPHP) can potentially create 6-7m tonnes demand for long steel assuming the government builds 50 per cent of the promised houses.

The company views future demand to come from the China-Pakistan Economic Corridor (CPEC) and the five hydro dam projects. It has already won a contract for three dams. It estimates steel demand of 350,000 tonnes from Bhasha Dam and 250,000 tonnes from Mohmand Dam in the first phase.

Razaque Steels Managing Director Irshad Mowjee, who also serves as general secretary of the National Steel Advisory Council (NSAC), said his company has increased the price by Rs3,000 on two kinds of quality steel bars, which now cost Rs111,500 and Rs116,500 per tonne.

Shredded scrap prices in world markets have risen due to lockdowns in Europe and the United States. The supply of scrap has become scarce, resulting in a hike in international prices. Yards do not have materials and the incoming supply is limited, resulting in the prices going up by $40 per tonne within the last three weeks, he added.

Fearing a further increase in steel bar prices if scrap rates do not come down, he suggested that the regulatory duty on raw materials should be abolished. The duty is not justified on raw materials used in a basic industry as industrialisation is the government’s top priority.

If it is not removed, it will affect the viability of CPEC projects. Cost overruns will happen as steel is a major component, he said.

Mr Mowjee urged the government to remove the additional customs duty of 2pc as competing raw materials are exempted from it. At present, the incidence of tax is around Rs23,000 per tonne, which needs to be reduced, he added.

Shredded scrap is used for manufacturing good quality bars for infrastructure projects. Increasing prices will affect the viability of CPEC projects, he said.

Gadani supplies ship plates that are used as raw material for lower-quality steel bars. Their prices have not increased, thus making bars made from steel billets uncompetitive. This may cause a drop in the production of good quality bars for infrastructure projects, he said.

Riaz Haq said...

Cement, steel prices continue to soar
Uptrend hampering recovery of construction activities in country

Owing to an expected jump in demand for steel and cement around the globe following the invention of Covid-19 vaccines, the uptrend in local prices for the two commodities has accelerated, which is hampering the recovery of construction activities in Pakistan.

Amreli Steels has announced a hike in the price of rebars by Rs5,000 per ton in addition to an increase of Rs5,000 per ton announced earlier during the month, said JS Global analyst Arsalan Ahmed in comments to The Express Tribune.

“It appears that the decision has been taken on the back of uptick in global scrap prices by almost $60 (Rs9,600) per ton,” he said. “After the recent increase, the price of rebars of the company stands at Rs128,000 per ton.”

Pakistan Association of Large Steel Producers (PALSP) Secretary General Syed Wajid Bukhari said that the price of scrap had soared from $300 per ton in early November 2020 to $450 per ton now due to shortage in the international market.

“The price has risen exponentially and several local mills have stopped buying raw material for now,” he said.

Dawood Hercules Corporation Research Lead Karim Punjani said owing to the rollout of Covid-19 vaccines, the international prices of the two commodities had soared.

“Companies expect demand for their products to skyrocket, hence prices of inputs including coal and steel scrap have hiked across the world,” he said.

Prior to the introduction of vaccines, Covid-19 was denting the global economy, he said. However, following the invention of vaccines, Covid-19 is being perceived as a disease, not a pandemic, which can be contained and losses borne on account of the virus can be recovered.

“This has led to a significant rise in demand,” he said. “Coal was priced at around $80 per ton before the global lockdown was imposed in March and fell to $65 when the lockdown was lifted.”

Given the current jump in demand, the price of coal has jumped to $90 per ton, said Punjani.

He added that local demand for steel and cement also swelled following Prime Minister Imran Khan’s announcement of a relief package for the construction sector.

He pointed out that instead of absorbing the hike in prices of inputs, companies were passing on the impact to consumers.

“A seasonal impact is also being witnessed with regard to coal prices,” he said. “In winters, hydropower plants observe maintenance shutdowns and countries generate electricity through coal and LNG plants.”

However, some builders have a different opinion about the hike in prices of cement and steel as they claim that the producers are taking benefit of the surge in demand for the two commodities.

“It is a conspiracy against Prime Minister’s Naya Pakistan Housing Scheme as well as the national economy,” said Association of Builders and Developers of Pakistan (ABAD) Chairman Fayyaz Ilyas in a statement issued in the backdrop of a sudden rise in steel and cement prices.

He urged the federal government to take immediate action against the industries which were trying to sabotage the steps taken by the government to revive the national economy.

Even though most of the raw material is local, cement and steel manufacturers have raised prices of their products to Rs625 for a 50kg bag of cement and Rs126,500 per ton of steel, which is not justified.

He was of the view that the cartel of cement and steel manufacturers seemed determined to crush the construction industry.

“Cement and steel are the main inputs for the construction sector but manufacturers of the two products are busy minting money without any justification and authorities are helpless to take any steps against these cartels,” he added.

Riaz Haq said...

Houses, flats for 1,500 Pakistani labourers under Naya Pakistan Housing project

It is very difficult for the salaried class, workers and laborers to construct or purchase a house in the cities due to soaring prices of land, Prime Minister Imran Khan said Thursday.

He was addressing a ceremony in Islamabad in connection with allotment of 1,500 houses and flats to the working class under the Naya Pakistan Housing programme.

The premier said the government has started the Naya Pakistan Housing project with a new mindset to provide support to these segments of society to own a house.

The ceremony started with a short speech by the PM's aide on Overseas Pakistanis Zulfi Bukhari, who said that in the first phase of this project completed by Workers Welfare Fund, 1008 flats and 500 houses have been constructed.

For the first time, workers and labourers are being provided with their own roof on mortgage basis, Minister for Communications and Postal Services Murad Saeed had said.

Under this scheme, houses will be distributed among widows and disabled, besides labourers on ownership rights to those who are earning less than Rs 0.5 million.

The premier said the government has introduced a legislation under which banks will provide loans on 5% interest rate for the construction of houses.

He said banks have promised to set aside Rs380 billion for this purpose.

Imran Khan said there is a boom in the construction industry due to the incentives given by the present government. He said this will not only lead to wealth creation but also provide job opportunities to the youth.

Riaz Haq said...

Two new #REITs launched in #Pakistan after unveiling of #ImranKhan's #NayaPakistan #construction program. One REIT is focused on building villas and the other on building apartments in #Karachi. Dividend payment tax on REITs cut to 15% from 25%. #economy

Pakistan is set for its first real estate investment trust in more than six years as Prime Minister Imran Khan seeks to stimulate the economy through a construction boom.

Arif Habib Dolmen REIT Management Pvt. plans to raise 8 billion rupees ($51 million) via private placements in two REITs for a housing project in Karachi, Muhammad Ejaz, the firm’s chief executive officer, said in an interview Tuesday. It plans to purchase the land in about two months, partly from Silkbank Ltd., he said.

Arif Habib Dolmen had created Pakistan’s only REITin 2015 and the industry, which had gone silent since then, is reviving now on Khan’s incentives and regulatory changes. Pakistan is willing to forgive tax evaders if they invest in construction projects, while banks have been asked to increase their outstanding mortgages by at least 5% by December.

One of the new REITs will focus on villas and the other on apartment buildings and commercial developments. This is a developmental REIT with an expected internal rate of return of more than 30%, according to Ejaz. The older REIT, which holds rental assets including Karachi’s most prominent mall and an office tower, offers a dividend yield of around 12% a year, he said.

Pakistan has been revising rules to make REITs more attractive for investors and developers. Finance Minister Shaukat Tarin in his budget this month lowered the dividend payment tax on REITs to 15% from 25%.

“The government has chosen the right sector for growth,” Ejaz said.

Silk Islamic Development REIT is scheduled to be launched next week for the commercial and apartment building section. Its five equal shareholders are Yunus Brothers Group that owns Lucky Cement Ltd., Fatima Group, Arif Habib Corp., Liberty Group and Arif Habib Dolmen. The second Silk World Development REIT includes real estate developer World Group, which will develop the villas.

Riaz Haq said...

Govt To Provide Loan To Deserving People Under Kamyab Pakistan Programme: Tarin

:Federal Minister for Finance and Revenue Shaukat Tarin Wednesday said the government would provide loan to deserving people to set up their business or purchase house through transparent process.

Talking to a private news channel, he said under Kamyab Pakistan Programme, low-cost housing scheme would be launched for lower income groups enabling them to own their houses.

Tarin said the data of deserving beneficiaries was available with department concerned in that regard.

The minister further said the incumbent government was providing loan on easy conditions and Kamyab Pakistan Programme beneficiaries could easily access to agriculture and business loans at zero-mark up without collateral.

He said the government under visionary leadership of Prime Minister Imran Khan had strengthened and stabled the national economy through prudent economic policies.


Kamyab Pakistan Program to bring 3 million families out of poverty: Shaukat Tarin

Finance Minister Shaukat Tarin has said that beneficiaries of Kamyab Pakistan Program would enjoy easy access to agricultural and business loans at zero-mark up without collateral.

He was talking to Prime Minister s Special Assistant on Social Protection and Poverty Alleviation Dr. Sania Nishtar in Islamabad.

The Finance Minister said Kamyab Pakistan Program will provide low-cost housing scheme for lower income groups enabling them to own their houses.

He said the program will bring at least three million families out of the vicious cycle of poverty in the next three to five years.

Riaz Haq said...

#Pakistan's TPL Plans to Raise $500 Million REIT to Gain From #NayaPakistan #Construction Push. It is seeking to raise 60% of the targeted funds from foreign investors, 30% from domestic investors & the rest from its parent TPL #Properties Ltd. #Karachi

A unit of Pakistan’s TPL Corp. plans to raise as much as $500 million through a private real estate investment trust, marking one of the largest such fundraisings in the nation’s history.

TPL REIT Management Co. is seeking to raise 60% of the targeted funds from foreign investors, 30% from domestic investors and the rest from its parent TPL Properties Ltd., according to Ali Jameel, CEO of TPL Corp. The hybrid real estate investment trust plans to close the deal by June, and will offer an internal rate of return of more than 30% in local currency, he said.