Asad Umar Shares His Views About Naya Pakistan Housing Program

In April 2019, Prime Minister of Pakistan Imran Khan launched Naya Pakistan Housing Program, sharing an ambitious plan of constructing 5 million houses in a span of five years. The purpose of this low-cost housing project in Pakistan is to provide affordable houses to the underprivileged section of our society. As per the latest updates on Naya Pakistan Housing Program, the government of Pakistan has set up a Chinese prefabricated housing plant to speed up the construction process of these low-cost housing units. Mr. Asad Umar, who served as the finance minister from August 2018 to April 2019, discussed NPHP with Zameen.com for Zameen Interviews, where notable personalities share their thoughts and views on various societal issues and current affairs topics.

On March 11, the State Bank of Pakistan re-visited the policy on low-cost housing finance to facilitate the timely execution of NPHP. Mr. Umar, who is the current government’s ex-Finance Minister and present Chairman of the Standing Committee on Finance has played an instrumental role in drafting this policy. In a series of question and answers, this blog shares his insights on the topic and what he thinks how NPHP will contribute to Pakistan’s economy.  

The interview begins with Mr. Asad Umar vouching for the success of the low-cost housing scheme. He said, “Yes, in my opinion there is no doubt that InshaAllah the project will be successful. Whether the government would be able to achieve complete target or not, it is debatable. The number of houses being constructed in Pakistan traditionally, if the government works on it with the same focus, there is no doubt you will witness a bigger improvement.”

WHAT WERE YOUR CONTRIBUTIONS AS FINANCE MINISTER IN THE SCHEME?

He described his role and said, “To provide the finances directly for this housing project and to bring changes in the rules and regulations, in order to facilitate investment in the housing.” Mr. Umar further discussed what steps were taken during his tenure as Finance Minister, “Three major steps were taken: Firstly, we created a 5 billion revolving fund, which will be provided for the low-cost housing as free of the interest cost. Secondly, we provided incentives to banks. Usually, banks invest very little money into housing finance and in low-cost housing, it is almost non-existent. Hence, in order to incentivize them, we reduced the tax rate to half, compared to the normal tax they pay, on the income they will earn when they give loans to the low-cost housing scheme. So, this was the second biggest step we took. Thirdly, we made a lot of changes in the rules and regulations of the State Bank of Pakistan in order to make it easy for banks to invest money in the low-cost housing scheme. The State Bank of Pakistan also introduced schemes for the low-income families which were given on subsidized interest rates. These were the three broad areas that we covered.”

It can be said that Mr. Asad Umar while being the Finance Minister played a pivotal role in making the housing project a success.

HOW CAN LOW-INCOME FAMILIES AFFORD SUCH A HIGH INTEREST RATE?

Mr. Umar answered the question by saying, “There is a revolving fund of PKR 5 billion.” He then went on to define the term ‘revolving fund’: “It means that they will give loan, once the re-payment is done, they can give the same money in loan again. Akhuwat was the main agency, through which this was supposed to be done. (Akhuwat is a Pakistan based Islamic microfinance organization). Akhuwat estimated from their experience that within the duration of 1 year, loans could be repaid. Hence, in the duration of 5 years this loan money can circulate 5 times. From these 5 billion, lending of 25 billion can also be done. These loans were completely interest free. Akhuwat would only charge their administrative cost, whatever that is – 4% or 5%, but the government is providing them money without any interest in this 5 billion revolving fund. Secondly, the State Bank created a window for the low-cost subsidized housing. As far as I remember, 6% is its total cost. The State Bank of Pakistan, would lend either at interest free or at 2% and then the bank would re-lend it on 6% maximum.” 

Mr. Asad Umar declared that the purpose of this was to facilitate low-income families who otherwise can’t afford to give high interest rates.

WHAT ARE THE ECONOMIC BENEFITS OF THIS PROJECT?

Stating how this will boost the economy of Pakistan he said, “It is well documented in the world’s economy and we have also seen it in Pakistan… that every industry has linkages with other industries, but there is no such sector which has as many linkages with other sectors as there are in the housing sector. People have different estimates about it. About 32-40 different industries are associated with it. If there is progress in this sector, if it is incentivized, houses are made, construction work is being done, then there is no doubt that the huge target of providing employment opportunities (is also met).”

He also stated that it is the “desire of every person and Pakistan’s constitution also says that the government will do every possible effort to provide people with their own house… to achieve both these targets (of providing job opportunities and housing to those who don’t have it), this housing project can play a huge role.”

AHSAN IQBAL SAYS SUBSIDIZED HOUSING SCHEMES HAVE A LIMITED SCOPE. WHAT IS YOUR OPINION IN THIS MATTER?

Mr. Asad Umar explained market structures need to be formed and foreclosure laws must be introduced. Here’s how he answered this question: “If you talk about the total scheme, only one part of it will be subsidized. This is absolutely true. To create market structure, to make laws… foreclosure laws are currently a big impediment in housing finance. We have to create that institutional infrastructure, correct the foreclosure laws and also make the approval structure of the governments easier. We also have to address the difficulties faced in land acquisition and the difficulties in law. All of this must be improved. Once all of these things are done, only then you can achieve such a big target. A small part of the entire target would be on subsidized basis. To this extent, he is correct.”

HOW WILL YOU ENCOURAGE THE PRIVATE SECTOR TO PARTICIPATE IN THIS PROJECT?

“The regulations of the State Bank or tax incentives are basically there to incentivize the financial side of the private sector because, obviously, the biggest thing which is needed is money to construct the houses. Hence, all these difficulties, impediments and roadblocks hinder the investments in this sector. If the government will remove them only then there will be a faster investment in the private sector.”

WILL THE INFLUX OF 5 MILLION HOUSES CREATE A SURPLUS OF HOUSING UNITS IN THE MARKET?

“Currently, there is a shortage of 10 million houses in Pakistan. Even if the target of 5 million houses is achieved, there will still be a shortfall of 5 million houses in the market. Therefore, surplus will not be created.”

WHAT LED TO THE FAILURE OF PREVIOUS PUBLIC HOUSING SCHEMES?

“The major investments or the biggest investments will be carried by the private sector. For this, all the things I have mentioned in the interview like the changes I am talking about in the financial system, the incentives which are discussed, changing the laws and land acquisitions, foreclosure. These are the impediments because of which the housing market doesn’t progress in Pakistan.”

HOW WILL THIS POLICY ADDRESS TO PEOPLE’S RESISTANCE TOWARDS HOUSING LOANS?

“In housing finance, it is important to promote Shariah-compliant schemes. It can also be a big opportunity because our Islamic banking industries failed to take off because they lacked proper investment opportunities. If, in housing finance, Shariah-compliant instruments are approved, it can become a huge source for Islamic banks for lending to people as well. You are right… a large number of people in Pakistan believe that traditional finance methods are not compatible with their religious beliefs. That is why, in order to make this scheme a success, there should be such products that are compatible with the Shariah.”

WHY DOES THE GOVERNMENT NOT INCENTIVIZE PRIVATE SECTOR TO LEAD SUCH PROJECTS?

Mr. Asad Umar explained in detail, “Federal Government Employees Housing Authority is working on this. There is a massive backlog of Federal Government Employees which has been created. It is easy to create financial structure over there…. You have a salary, you know how the deduction will take place. Moreover, banks can easily lend and the government will only have to play a facilitation role. That too, they don’t have to do it on their own, the construction companies will make the investment needed over there. But this would form a smaller chunk of the entire scheme. Larger investments would be from the private sector.”

In the end, he discussed that in order to improve economic conditions in the country, Pakistan will have to go through a difficult phase and think of long term goals. You can also watch the complete interview in the video shared above.

Although the low-cost housing scheme is currently in its initial stages, the first two registration phases have already been launched. If you are planning on investing in Naya Pakistan Housing Scheme, then remember the deadline for the online registrations for NPHP is October 15, 2019.

Stay tuned to the best real estate blog in Pakistan – Zameen Blog. You can also catch the latest online interviews by Zameen.com on our Facebook page and YouTube channel.