Pakistan’s mortgage rates stand notably high at around 24 percent, marking the highest among its South Asian counterparts.
This rate is notably higher than the single-digit mortgage rates prevalent in other regional economies such as Vietnam, Indonesia, and India, varying around 8-9 percent.
This situation presents a stark contrast to more developed Asian economies like Singapore, Japan, and Taiwan, where mortgage rates are considerably lower, ranging between 2 percent and 4 percent, according to a research report published by House Building Finance Company (HBFC).
According to the report, the construction sector has a total outstanding loan amount of ~Rs. 200 billion, comprising Rs. 35 billion in working capital or short-term loans, and Rs. 165 billion in fixed investment or long-term loans.
Within this sector, building construction holds the largest share, totaling Rs. 147 billion, of which residential construction accounts for Rs. 74 billion and non-residential construction for Rs. 73 billion.
The elevated mortgage rates in Pakistan may be symptomatic of several underlying issues: lenders perceiving higher risks, a lack of competitive dynamics within the banking sector, or the impact of inflationary trends on the economy.
In contrast, the lower mortgage rates in countries like Taiwan could be reflective of more stable economic conditions, well-established credit markets, and potentially more aggressive monetary policies aimed at fostering homeownership through more affordable financing options.
This pronounced disparity in mortgage rates underscores the challenges faced by Pakistan’s housing finance market. It highlights the necessity for policy interventions that can help reduce financing costs and enhance accessibility for potential borrowers. Such measures could include fostering competition in the banking sector, mitigating risk factors that lead to high lending rates, and implementing monetary and fiscal policies that support more affordable home financing. These steps are critical for making homeownership more attainable and stimulating growth in Pakistan’s housing market.
Pakistan requires targeted financial policies aimed at market stimulation and reducing the housing deficit. Besides, regulatory reforms are essential to create a more conducive environment for mortgage growth. Additionally, introducing market incentives could play a crucial role in enhancing the appeal and accessibility of mortgages. These steps are critical for developing a more robust and dynamic mortgage sector in Pakistan, aligning it more closely with the established markets in the Asian region.
Pakistan’s property sector is facing challenges due to inflationary pressures, leading to a decline in real property values. This situation starkly contrasts with the more favorable long-term trends seen in India and the resilience of other Asian real estate markets. For Pakistan, the a need for strategic economic reforms aimed at fostering market stability and rejuvenating investor confidence in its real estate sector. These reforms are critical for aligning Pakistan’s property market with the positive growth trajectories observed in other Asian regions.
The historical trends in Pakistan’s mortgage-to-GDP ratio reveal a consistently subdued performance, hovering the ratio hovering below 0.5 percent. The data traces a path from 0.22 percent in the fiscal year 2011 (FY11), dipping to a low of 0.14 percent by FY15. Post this decline, there’s a noticeable, albeit modest, uptick, peaking at 0.32 percent in FY22, followed by a minor reduction to 0.28 percent in FY23.
This pattern highlights a mortgage market in Pakistan that has remained largely undeveloped over the years. However, the slight upward movement in the latter years suggests the beginnings of a growth trajectory. The stability in the low fluctuation and the recent incremental increase underscored a latent potential in Pakistan’s mortgage sector.
Leveraging this potential requires strategic initiatives, including financial reforms to facilitate credit accessibility and targeted economic policies to invigorate the housing market. Such proactive measures could catalyze the growth of the mortgage market, which is currently in a nascent stage but showing signs of emerging development.
In comparison with other Asian economies, Pakistan’s mortgage-to-GDP ratio is significantly low, highlighting its early-stage mortgage market. This stands in sharp contrast to countries like Malaysia and Thailand, where the ratios are much higher at 44 percent and 20 percent respectively. These figures from Malaysia and Thailand represent more mature markets, characterized by deeper credit penetration and higher levels of homeownership.
Pakistan’s consistently low ratio, remaining under 0.5 percent over the past decade, points to a market with considerable room for growth. The slight increase observed in recent years indicates the beginning of market development. However, the stark difference when compared to its regional counterparts emphasizes the urgent need for specific interventions.
The real estate market in Pakistan in 2024 is at a critical juncture, with declining property prices and high mortgage rates indicating a sector in transition. This period is characterized by adjusting property values and investment strategies.
The construction sector’s slowdown, a key economic driver and major employer has broader economic implications, affecting related industries and potentially increasing unemployment and impacting consumer spending.
The future of Pakistan’s real estate market hinges on balancing various economic, social, and policy factors. The sector’s resilience and adaptability will be crucial, requiring strategic foresight from stakeholders like developers, investors, policymakers, and consumers. Ultimately, the state of the real estate market in 2024 reflects Pakistan’s overall economic narrative, and addressing its challenges and opportunities is key to shaping the country’s economic future.