How to talk about Naya Pakistan Housing Program at a dinner party

October 11, 2018


You’re at a dinner party and someone brings up Prime Minister Imran Khan’s Naya Housing Program, a massive project for the poor. We broke down the numbers, arguments (for and against) all in one place.

The target is to build 5m homes in 5 years OR 1m houses a year.

These houses are for people who earn Rs15,000 to Rs20,000 a month. But people earning up to Rs100,000 can also apply.

Those who don’t own a house will be given preference.

The government is not building the houses, by the way. It will be the private sector which means, builders. They will not build all the houses in cities but will also see rural areas. This is why they are asking people to fill in forms to survey where the demand for housing is coming from.

Related: Who is eligible to apply for Naya Pakistan Housing Scheme

COST
Total cost: $180 billion or Rs24,120 billion
Cost per house: Rs1.5m to Rs2.5m

PAYMENT
How people will pay to own these houses:
10% advance payment and 90% loan

For a Rs1.5m house, you pay Rs150,000 in advance and take a loan of Rs1,350,000.
You pay installments for 20 years and become the owner.
But it will cost you more than Rs1.5m after interest is added.

Related: NADRA website back up after being ‘temporarily affected’ as Naya Pakistan housing forms go online

CRITICISM
This is where it gets complicated:  Critics say the project is not commercially viable. They give these arguments:

  1. It took Pakistan 71 years to build 4.9 million houses.
    This government plans to build 5 million in just five years
  1. The Naya Housing Program is worth 60% of our GDP (economy)
    No country in the world can build a housing project this size.
    Total money banks have in their accounts = Rs12,700 billion
    Size of our economy (GDP) = Rs34,000 billion
  1. Developers build houses by taking loans from banks, but banks don’t have enough money to finance a project of this scale
    90% of the house cost has to come from a bank loan, but the total money banks have right now is not enough to meet this demand
  1. House loans come at 4% interest internationally. In Pakistan the interest rate is over 10%. This makes it expensive for those earning Rs15,000 a month.
    For e.g., a Rs1.5 million house will cost you at least Rs10,000 per month in interest payments alone.
    Interest rate for car financing = 12%
    Interest government pays banks on Pakistan Investment Bonds = 11%
    The SBP can ask banks to provide a cheaper rate for the Naya Pakistan Housing Programme
    For example, banks charge 3% from the export-oriented industry under the Export Finance Scheme, which is much lower than commercial rates.

So the question is: The scheme is meant to cater to the lower middle class that earns just an average of Rs20,000. But if they’re paying 11% of their salary in just interest, how will they manage to pay off the actual loan?

  1. The government can offer a subsidy to reduce the interest rate, but it doesn’t have the money.
    Govt tax revenue per year = Rs4,400 billion
    Project cost per year = Rs7,800 billion

Analysts believe the project is good but the target of 5 million is too optimistic.
Since the finance ministry and State Bank are working on the model, it is difficult to assess its soundness.
If they make a good model for housing finance, achieving even 25% of this target will be a big success.

The government and builders think it is doable:

  1. The government says it will control corruption, tax evasion and money laundering, which will increase its revenue and bring more cash into the banking system
  2. The government says it will work with the State Bank to ensure banks lend money for this project. Commercial banks will be facilitated to float bonds to raise money from investors.
  3. The government will provide land for the project and that land will become the collateral against the bank loan.
  4. The government says just one country has shown interest in investing 20 billion dollars in the project
  5. The government plans to engage 10,000 developers, hoping that if each builds 500 houses, the target will be achieved.
  6. Builders say the project’s actual cost will be half of its value ($180 billion) because the government is providing the land
  7. Builders say the government’s scheme is in line with the proposals they (the builders) have given to the government. A detailed financing model is being  worked out and will be out soon