Mortal mortgages

Its one of the biggest dreams of residents in the West to be able to pay off their mortgage payments comfortably. But such a facility is still more of a luxury for Pakistanis, who have limited access to housing finance, and owning their own place remains a distant dream.
The latest issue of the Financial Stability Review of the State Bank of Pakistan (SBP) showed a declining asset base of housing finance of non-banking financial institutions (NBFIs). The total value of outstanding mortgages is less than 1 percent of GDP in Pakistan, while the same ratio hovers between 50 to 70 percent in developed economies.
The menace of the lack of documentation, like many sectors, has also plagued the housing finance arena. Informal lending for housing finance makes up 10~12 percent of the total housing transactions as against 1 to 2 percent from the formal financial sector, according to SBPs quarterly review of housing finance for April-June 2010.
From a demand-side perspective, declining liquidity of the consumer-base, especially in the midst of a high interest rate regime is at play, reducing the number of prospective beneficiaries of mortgage financing.
But, inflationary and economic factors aside, a number of legal and administrative issues are also reasons for barring many from the housing finance market.
Lack of proper allotment of land titles and cumbersome administrative procedures make land records error-prone. In such a scenario, the absence of any evidence of bona-fide land titles render banks and housing finance institutions wary of extending loans to people. Consequently, the only residents of a fortunate few localities in a fortunate few urban centres get to benefit from the mortgage financing facilities.
Aside from that, the foreclosure laws in the country are also quite exasperating and non-conducive to mortgage financing. According to a leading banker, it takes around 15 years before a litigation on house financing is executed and resolved. Until then, the bank is stranded in the middle and is not compensated for the opportunity cost incurred in carrying on a lawsuit for so long.
The above-mentioned supply and demand side predicaments are exacerbated more for the middle and lower income groups, which have greater housing needs than the upper strata of the society. It is no surprise, therefore, that 31 percent of the total population of Pakistan faces housing shortages, according to the World Bank. This number is one of the highest in the South-Asian region, the lowest being 11 percent in India.
Given the abysmal state of housing in the country, a more concerted effort is required from both the regulators and law makers of the country. Where housing laws need to be made more favourable, low-cost housing is also a strong possible option to work on for the benefit of the masses.
The makaan pledge of PPPs famous slogan may have been bearing the brunt of high inflationary pressures in the country, but one hopes it doesn fall down in the face of legal and documentary impediments.