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Improving Access to Affordable Housing in Pakistan

Introduction

At PropTech Convention ’24, a panel discussion was held on affordable housing in Pakistan, focusing on financing challenges, regulatory issues, and solutions for middle and low-income groups. The session was moderated by Mr. Asif Shaikh, with panelists Mr. Faisal Murad, Mr. Faisal Khan, and Mr. Muhammad Kamran, who shared their insights on Pakistan’s housing sector and the steps needed to improve accessibility.

The discussion emphasized the need for structured policies, mortgage financing solutions, and affordable housing projects. Panelists highlighted challenges faced by homebuyers, financial institutions, and developers in making housing more accessible.

Challenges in Affordable Housing Development

Pakistan’s rapid urbanization has increased the demand for affordable housing, but supply remains limited. While government initiatives such as the Mera Pakistan Mera Ghar scheme were introduced to facilitate homeownership, the availability of low-cost housing units is still a major issue.

Pakistan’s housing finance market is underdeveloped compared to neighboring countries. The total housing finance portfolio in Pakistan is around 200 billion PKR, whereas in India, it exceeds 9,000 billion PKR. This gap exists due to the lack of a structured financial and regulatory framework to encourage housing development.

Rising construction costs and land prices make it difficult for developers to offer affordable housing. Many builders struggle with financing due to inconsistent government policies, lack of investor confidence, and economic instability. Without structured financial support, the focus on affordable housing remains limited.

The Role of HBFC in Housing Finance

The House Building Finance Corporation (HBFC) has been actively involved in housing finance in Pakistan, serving around 32,000 customers. It primarily focuses on providing small home loans to middle and low-income buyers who cannot access financing from commercial banks.

HBFC launched the Gharr Pakistan Scheme (GPS) four years ago to stabilize interest rates for low-income homebuyers. The scheme introduced a 12% interest rate cap, ensuring borrowers were protected from market fluctuations.

HBFC also played a key role in the Mera Pakistan Mera Ghar scheme, which offered subsidized home loans. Unlike commercial banks, HBFC prioritized a higher number of customers rather than large loan amounts. The average loan size remains at 3.2 million PKR, making financing accessible to a larger population.

Regulatory Barriers in Home Financing

State Bank of Pakistan (SBP) defines low-cost housing as homes valued at a maximum of 3.15 million PKR. However, there is a major supply gap, as very few developers construct homes within this price range. Without adequate supply, banks and financial institutions struggle to finance affordable housing projects.

Land ownership and lease issues remain significant obstacles. Banks, including HBFC, cannot finance properties without proper lease titles due to SBP’s prudential regulations. Many low-income housing developments lack documentation, making them ineligible for mortgage financing.

Financial institutions in Pakistan do not allow clean lending, meaning borrowers must provide collateral to secure home loans. Since low-income groups often lack assets, their ability to access housing finance remains limited. Without regulatory reforms, homeownership will continue to be out of reach for many.

The Need for Vertical Housing Projects

Due to rising land costs, vertical housing projects have been proposed as a solution to increase supply. However, financial institutions hesitate to finance vertical developments due to project completion risks and cost escalations.

Challenges in financing vertical housing projects include:

  • Construction delays, leading to higher costs.
  • Unclear project completion timelines, affecting buyer confidence.
  • Lack of regulatory oversight, discouraging bank financing.

Some countries have implemented Real Estate Regulatory Authorities (RERA) to oversee housing projects, ensuring transparency and timely delivery. Pakistan, however, lacks a strong regulatory framework to oversee such developments, making housing investments riskier for both buyers and lenders.

Future of Affordable Housing in Pakistan

Panelists agreed that Pakistan must move beyond government subsidies and focus on long-term solutions for affordable housing. A structured approach combining regulatory reforms, financial incentives, and strategic development plans is required to ensure sustainable growth.

Key recommendations from the discussion included:

  • Establishing a Real Estate Regulatory Authority to oversee housing projects.
  • Encouraging vertical developments to reduce land costs and improve affordability.
  • Expanding access to mortgage financing through flexible home loan options.
  • Supporting small and medium-scale builders to launch affordable housing projects.

Conclusion

The PropTech Convention ’24 panel discussion on affordable housing in Pakistan highlighted the financial and regulatory challenges affecting housing accessibility. With rising demand and limited supply, both developers and financial institutions face obstacles in meeting the housing needs of middle and low-income groups.

While initiatives like HBFC’s Gharr Pakistan Scheme and the Mera Pakistan Mera Ghar scheme have contributed to housing finance, more structural reforms are required to ensure long-term affordability. By improving financial policies, expanding mortgage options, and implementing regulatory frameworks, Pakistan can create better opportunities for homeownership.

The future of affordable housing depends on coordinated efforts from the government, financial institutions, and private developers to bridge the housing gap and support sustainable urban development.

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