That this government could facilitate the building of 5 million houses in five years was anyway too outlandish an idea for folks to hang real hopes on. But realistically, the Naya Pakistan Housing Plan (NPHP) could potentially mark the beginning of new quality housing stock being created across the country; a stock which was affordable and accessible to the under-served segments especially low and middle-income households. That was the aspiration. Let’s see what has transpired thus far, though one must contend here with data and information limitations given that government agencies have been less than forthcoming about open data sharing and transparency. The final picture, therefore, may be a little blurry.
The available data does provide valuable information. For instance, construction finance has certainly grown in the past year. What’s noticeable here is that the component within construction finance which constitutes residential and non-residential building has grown far more and its share has gone from about 40 percent of total construction finance to 70 percent. Civil infrastructure finance has evidently taken a backseat. This is not a coincidence. The SBP has mandated banks to maintain a target share of 5 percent for construction and housing in their loan portfolios. The sudden activity began in May-20, suspiciously right after the construction package of the government was announced. Construction finance suddenly started becoming hot.
A quick recall here that the government announced a construction amnesty for builders who were all set to enjoy a variety of tax and non-tax benefits such as fixed tax regime, in addition to a no-questions-asked policy for source of funds. Under NPHP, projects would get a 90 percent tax waiver. In addition, the government also announced a mark-up subsidy for first-time home buyers.
Now, since May-20, outstanding residential and non-residential building construction loans have grown 81 percent (till Nov-21) while net borrowings have grown by Rs41 billion during this period. Month on month net borrowings have remained positive since. The same growth for just residential building construction during the period was 85 percent. For the sake of comparison, credit to the private sector between May-20 and Nov-21 has grown only 18 percent, so the shift to construction is certainly visible.
The question then arises where is this construction happening? Nobody actually knows! FBR has been really guarded about sharing information of builders and projects that have registered under NPHP and construction amnesty package. The most reliable numbers were made available to media in Sep-21 that informed that 2,125 projects were registered under the package which had a total worth of Rs493 billion—that’s an average of Rs232 million per project, though averaging-out takes away the variations in data and can be misleading. There is a mountain of information in fact, that is needed here: how big or small these projects are, which income segments have been targeted, what kind of construction is happening or has already taken place. What we do know is that nearly half these projects were already under construction when they were registered.
Nevertheless, depending upon the loan to value ratio, anywhere between 80 to 175 projects could have been bank-financed by now (again, this analysis is limited by data paucity. Actual number of borrowers, size of loan, or incremental monthly credit data is not available so the best bet is to look at net borrowings). Growth in construction finance therefore is not outside the realm of possibility. However, the sudden growth from May-20 onwards cannot be verified and remains unexplained—for starters, how did the banks conduct due diligence in such a short span of time? Eagerness for banks to dole out construction loans, on the other hand, has been entirely motivated by SBP-mandated targets.
Still, this does not answer how much on-ground construction is taking off. But first, let’s talk quickly about housing finance. SBP has been in self-congratulatory mode by lauding its carrot-stick strategy for banks to provide mortgage financing to home-buyers. Most banks have announced their own Mera Pakistan Mera Ghar program (MPMG) and starting in Dec-20, banks have cumulatively approved Rs100 billion worth of home loans, of which Rs28 billion have been disbursed thus far (in Nov-21). The approval rate of these loans has gone up from 17 percent to 41 percent. Alas, this data is not meaningful enough. This column has earlier lamented the quality and robustness of data that used to be published by SBP and is no longer available (read: “Housing Finance: data nostalgia”).
Housing finance on the whole has grown over the past months but not nearly as much. As a share of consumer financing, housing loans have remained stagnant at 17 percent. However, MPMG has taken over a chunk of the current loans being given out under housing. This share has grown almost dramatically to 21 percent (of total housing finance) in just 11 months. This does not mean that a lot of low-cost housing is being carried out. In fact, there is no way to tell at all. Banks can provide loans under MPMG of up to Rs10 million. As earlier explained: “While NAPHDA-run projects have a maximum property value of Rs3.5 million—which brings them close to the “low-cost” category, non-NAPHDA projects do not have a cap on property value which means as long as the financing amount is under Rs10 million, home buyers — across income groups — can buy pretty much any property anywhere if they can afford it. The financing amount is limited by the size of the property in sq ft. which to a great extent would limit the property value, but it no where means that these loans are moving toward affordable or low-cost housing”.
SBP’s targets do include number of housing units to be financed by banks which would naturally mean that banks cannot just give out the largest loans to a few, credit worthy borrowers and may have to spend some effort in credit assessment. Optimistically, if one-third of the total approved amount is going into each of the three NPHP-defined tiers (where max loan amount for each tier is — tier 1: Rs2.7m, tier 2: Rs 6m, tier 3: Rs10m), total number of borrowers with approved home loans comes to approximately 21,000. In 11 months since the scheme, perhaps, that is not a bad number after all. But without adequate data, this is just conjecture.
Since SBP has not disclosed the targets publicly or given a number for total MPMG borrowers, one would be hard-pressed to make any suitable judgements on “low-cost” or “affordable” housing. Subsidized loans are being given out, that’s for sure. How many and to whom is a set of information that the public is not privy to. This then makes it more difficult to ascertain the progress of the construction amnesty scheme or the NPHP or even the MPMG.
The last set of data that could be considered is production of material datasets. Monthly domestic dispatches of cement peaked in Nov-20 and have maintained a lazy upward trajectory, selling somewhere between 3 million tons and 4.5 million tons of cement per month, never really crossing the Nov-20 peak. Steel production has also grown, right now rivalling its peak in late-2018. Sales and production of construction materials demonstrate growth but nothing too dramatic. One point of note here is that the ratio of cement to billet has been falling lately trailing 10 tons, down from 13 tons or even 15 tons during FY12-13. This means, for every 1 ton of billet, less cement is being used now than before. This could indicate that construction is more concentrated in infrastructure, particularly hydropower projects where more steel is used compared to the steel-usage in building construction. On-ground as well, construction of hydropower projects underway is very visible while other types of construction across the country — anecdotally — has not been as thrilling.
There is nothing to indicate here that a construction or housing boom is underway in Pakistan, least of all, a boom or offtake in low-cost or affordable housing. Despite the blurriness of picture painted here, if anyone claims a construction boom is happening, they are being disingenuous.