Urban Housing Crisis Deepens With Pakistan's Financial Woes

(Bloomberg) -- Nowhere is Pakistan's housing shortage more acute than in its most densely-populated metropolis of Karachi, where over half of its 15 million residents live in slums.

South Asia's second-largest economy is facing a housing shortfall of 10 million units and needs to build about 700,000 houses every year to fill that gap as its population continues to grow. That's spurred Prime Minister Imran Khan to pledge to build five million low-cost homes in five years in the country of more than 200 million people.

But the administration of the former cricket-star has so far been sparse with details as it struggles with Pakistan's latest in a long-line of financial crunches and negotiates its 13th International Monetary Fund bailout since the late 1980s.

The materialization of Khan's flagship housing venture will require more than $17 billion annually, said Arif Habib, a Karachi-based property tycoon. “This project looks ambitious, but is very much doable,” Habib said in an interview at Naya Nazimabad, where he is building a $2 billion gated estate in north Karachi.

It will likely need government subsidies and support for developers like Habib, who aren't likely to be persuaded by the limited returns from building low-income housing. That's money the resource-constrained government will find difficult to muster.

Officials at Pakistan's housing ministry didn't respond to phone calls requesting comment.

Default Dangers

It's not clear whether Pakistan's banks, which make the vast majority of their money through acquiring government debt, have enough liquidity for housing financing, especially given their non-performing loans grew 2 percent to 637 billion rupees ($4.57 billion) during the quarter ended September.

The government also needs to address key regulatory impediments to allow lenders to foreclose a property in case of default, according to Saad Hashemy, the chief economist at Karachi-based Topline Securities Ltd.

“Mortgages are certainly an aspiration for all banks in Pakistan as it is an under-served area and essential for economic growth,'' said Sima Kamil, the chief executive officer of United Bank Ltd. But Khan will need to create an environment that allows lenders to lift the availability of mortgage finance to a wider population, she said.

In Pakistan, the current rate of mortgage housing finance varies from 13.7 percent to 14.7 percent for 20 years.

That puts it out of reach for people like Azizur Rehman, who started building a small two-story house in the impoverished port-side Keamari district of Karachi 15 years ago that he's yet been unable to complete.

“The reason is money,” said the 42-year-old school teacher, who has so far borrowed 3.5 million rupees from family and friends after banks rejected his mortgage applications. Rehman needs another 600,000 rupees to recognize his dream.

Muhammad Younus, a director at the Urban Resource Center in the city, said more than 500,000 people in Karachi are homeless. And for bankers, the main issue is the wide risk of default, he said.

“In many Asian countries housing loans are never returned especially if the borrowers are from low income or poor class,” Younus said. “The loan often fails and is never paid back.”

Land Claims

Availability of land in Karachi -- the nation's financial hub -- is also a contested issue. About 80 percent of the megacity has been illegally encroached upon after decades of poor planning, criminality and inadequate coordination between regulatory agencies, according to Karachi's mayor, Waseem Akhtar, who's part of the Muttahida Qaumi Movement that's in a federal coalition with Khan.

On Tuesday evening, former MQM member of the National Assembly, Ali Raza Abidi, was killed in a targeted shooting. Ethnic clashes and gang wars have festered in Karachi since 1947, when the first wave of migrants poured into the city following Pakistan's violent partition from India. In the 1980s, the Afghan war sent thousands more fleeing from the border regions to the city.

“The influx is too much,” Akhtar said in an interview at his office in Karachi.

One of Akhtar's drives has been to push for the demolition of illegal structures across Karachi. Outside his office at least three bulldozers were preparing to bring down illegally erected shops long established on public land.

That has caused widespread anger among traders, after the Supreme Court last month backed Akhtar and Khan's push. As many as 3,000 shops in Karachi have been destroyed and thousands more are on the line, said Atiq Mir, chairman of the All Karachi Tajir Ittehad that represents around 400 trade groups.

It's already come at a political cost. Once a staunch supporter of Khan's ruling Movement for Justice party, Zafar Shah, a 30-year-old garments retailer, said he will never again vote for Khan after his shop at the British-constructed Empress Market was torn down last month.

“We have lost our business, we are jobless now,” said Shah, a father of six. “They keep talking about giving us alternative places for shops that have not been identified yet.”

To contact the reporter on this story: Ismail Dilawar in Karachi at mdilawar@bloomberg.net

To contact the editors responsible for this story: Chris Kay at ckay5@bloomberg.net, Ruth Pollard

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