From mortgage finance to gharonda

In 2009, the housing backlog in Pakistan was 7.57 million units, while over 30 percent of Pakistanis faced housing shortages.
The numbers make the news of the launch of a Mortgage Refinance Company (MRC) - an initiative to deal with the problem of mortgage financing in the country - seem like a breath of fresh air for liquidity-choked homebuyers.
Mortgage financing provides backward and forward linkages to industrial and services sectors with a multiplier effect of 3-4. Thus, the initiative by the Central Bank will be beneficial on a wider scale for the country.
Looking at the numerous city-dwellers, who pay exorbitant rents without accruing any investment benefit, mortgage financing will be well-received by many.
However, the plague of minimal documentation and lack of proper allotment of land titles have cursed housing finance abysmally in Pakistan. Informal lending for housing finance makes up 10-12 percent of total housing transactions, according to the SBP.
Adding to the ado are tardy foreclosure and recovery laws in Pakistan, with several years taken to resolve housing finance litigations. Naturally, banks tend to shy away from house loans, given such non-conducive laws.
Graver, in the current macroeconomic turmoil, are the hefty interest rates, which impose a huge liquidity constraint on buyers. Therefore, the rate at which MRC would be providing house loans will be a very critical one, and long-term fixed rates financing by mortgage liquidity facilities such as MRC will be a good idea.
Having banks as 50-percent stakeholders appears to be advantageous because having a strategic interest in the MRC, banks can provide able bankers with marketing expertise to the MRC, and can also facilitate it through the greater outreach of extensive bank networks.
Yet, to facilitate mortgage financing for those who really need it - the middle and lower income groups - more has to be done to complement the provision of funds.
The government, which is a 20 percent stakeholder in this initiative, should allot land for low-cost housing schemes, where land title deeds are meticulously assigned.
Theres another area where the government can play its part, as Shahid Kardar, Governor SBP, pointed out in an earlier interview with BR Research, "there is a question of whole taxation structure; stamp duties and property taxes are very high for commercial development and rented properties and so on."
Banks, on the other hand, could help set committees within the MRC to conduct adept credit appraisals. Thorough due diligence for assessing repayment capability and credit worthiness of borrowers can help the MRC venture beyond traditional, well-off mortgagers by mitigating risks.
Ishrat Husain, former Governor SBP, aptly discussed this at a workshop on housing finance back in 2003, "banks should develop expertise in underwriting housing loans, i.e. analysing information relating to credit risk and making a decision whether or not to accept that risk."
Liaising with engineers and researchers can also help in coming up with low-cost housing, for example by using alternate materials and economical building plans. Such initiatives, and housing finance for these, can be incentivised by the government.
Overall, the focus has to be those who really need a shelter of their own.