Naya Pakistan Housing Program NPHP | Road to Relief or to Financial Crisis?

Naya Pakistan Housing Program is a project of the Government of Pakistan to help the poor and homeless population of Pakistan who is either living in a rental house or living in a miserable environment.

The vision reflects the sympathy of the Government of Pakistan and especially Prime Minister Imran Khan for the underprivileged sector of my country.

For the common readers, there are a few terms which I am going to use in the article and requires definition are:

                 I.          Mortgage:

“A mortgage is a loan in which property or real estate is used as collateral. The borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set time span until he pays back the lender in full. A mortgage is often referred to as home loan when it’s used for the purchase of a home”.

               II.          Financial Crisis:

“In a financial crisis, asset prices see a steep decline in value, businesses, and consumers are unable to pay their debts, and financial institutions experience liquidity shortages. A financial crisis is often associated with a panic or a bank run during which investors sell off assets or withdraw money from savings accounts because they fear that the value of those assets will drop if they remain in a financial institution. Other situations that may be labeled a financial crisis include the bursting of a speculative financial bubble, a stock market crash, a sovereign default, or a currency crisis. A financial crisis may be limited to banks or spread throughout a single economy, the economy of the region, or economies worldwide”.

      1)     What is Naya Pakistan Housing Program?

Prime Minister Imran Khan has unveiled his government’s flagship project Naya Pakistan Housing Program. Ensuring the provision of five million low-cost houses for underprivileged classes during the next five years.

Khan is optimistic that the successful implementation of the program, would not only boost the country’s economy but create immense job opportunities as well.

According to the program, the government would provide the required land for the project and play the role of a regulator and facilitator to address bottlenecks to ensure enabling environment through the one-window facilitation center for public and private sectors and non-profit organizations that would execute the project.

Note: If you are only here to read about the Financial Crisis head to the last section of the article.

2)     Who can and how can one apply for this program?

Eligibility Criteria for NPHP:

The eligibility criteria for Naya Pakistan Scheme is that only one person can apply after submitting PKR 250 with the form. Soon after the launch of the program, a number of applications were received by NADRA. Half a million of them have been digitized.

In a nutshell, the NPHP eligibility criteria are as follows:

·        Only one person per family can apply (husband/wife).

·        A fee of PKR 250 to be submitted along with the registration form.

·        Those with a monthly income of approx. PKR 10,000 – PKR 25,000 will be preferred.

·        Those who do not own any independent properties in Pakistan will be preferred.

                Houses in the Naya Pakistan Housing project will be built in three categories. These are:

a)      Labor class.

b)      Lower middle class.

c)      Middle class.

These houses will be offered on a 10 percent to 25 percent down payment to all the above-mentioned categories.

      3)    How Program is going to Work?

The following flow of scheme has been defined on the Insaf.pk (The official website of the ruling party).

(Insaf, n.d.)All land titles will be verified by the authority, the land will be acquired by the authority, the authority with the help of builders and developers will decide what product is needed for the market on the basis of the data which the authority would have collected and market study.

Secondly, the authority will also ensure that the necessary infrastructure needed for the project is in place before the scheme is launched which means access, water, sewerage, electricity, etc.

Builders will compete to provide the best possible price to the end consumer through a reverse auction/ e-auction.

The houses will be given to the end consumers on a first come first basis.

The projects will be completed by the builders by their or own funds or through obtaining loans obtained by the builders for the project. These loans will be repaid by the builders with the accrued interest until the date he has handed over the project to the end consumer.

This financing scheme will ensure that the projects are completed in the shortest possible time. The end consumer is saved from the financial cost.

The price of the land would be not paid by the builder the price of the land would be recovered from the end consumers. The title of the land will be transferred to the bank which will transfer the land to the condominium corporation once the loan is repaid.

The end consumers will have to pay only 20% of the unit price during the construction period but before they would have to obtain financing approval for 80% of the amount for the loan from a commercial bank. This loan will be repaid by the homeowner over a period of twenty years. The objective is to bring the installment as close as possible to the rent they are currently paying.

Through the above measures, we hope this will help the builder offer apartments of which would be at least 15 to 20% lower than the market prices. Thus making the apartments and the twenty percent down payment as high rated collateral for the loan the bank is giving to the end consumer.

Furthermore, for processing the loan application the banks would consider the clubbed income of direct relatives such as Husband, wife, and children with an income.

To increase the financial resources of the banks the following sources of funds will be considered, pension funds, zakat funds, provident funds, funds at the disposal of insurance companies, EOBI, Social Security institutions, etc.

The banks would be allowed to park funds parked in the housing industry with the remortgage companies on the creation of a secondary finance market.

The Main Question is this program will lead Pakistan to a Financial Crisis?

As mentioned above the banks are also incorporated in this program to facilitate the builders and house owners to lend them money for buying or developing the houses.

Banks would lend money to builders first on a defined set of interests and terms & conditions. This would allow the builder to complete the construction of the homes in a defined set of time.

Banks would lend money to house owners in the form of mortgages which will help the house owners to get the official ownership of homes after the defined set of installments paid.

This incorporation of the banks with the program leads us to the two basic scenarios:

Ideal Scenario

In this scenario, every builder builds the house in a defined timeline and gets an owner to buy the house the pay the loans in a defined timeline. The house owner pays the mortgage loans without missing any month.

Real-World Scenario:

In this scenario, the builder falls behind the schedule and also get delays whilst getting an investor or a buyer, eventually leading the builder to pay the debts from his own pockets and also worsening the situation in which the builder is under heavy debts by banks with the increasing interest rate on monthly basis. There will come an instance where the builder will have to file the bankruptcy and the builder will lose all of his investments and liquidities.

Now, the end-buyers have to pay the loan on a monthly basis and the minimum monthly wage for the eligibility criteria has been set to 10,000 to 25,000 Pakistani Rupees. The minimum installment plan as defined by the officials are:

Unit size	3 Marla	5 Marla
Processing Fee	PKR 250	PKR 250
Token Money (Refundable)	PKR 10,000	PKR 10,000
20% Down Payment	PKR 67,200	PKR 112,000
36 Monthly Installments	PKR 7,467	PKR 12,445
Estimated Total Price	PKR 336,000	PKR 560,000

Now considering the 36 installments plan and keeping the minimum eligibility criteria we are coming to a situation where ideally, if every hurdle vanishes and the scheme achieves its major targets, this is not going to help the poor increase their income. Any income to the poor from the project would go to banks as installments of their houses. Owning houses, the poor would be able to save between 2000 to 5000 PKR that they pay as rent for living in slums, otherwise.

And if they are unable to pay their monthly installments the banks would acquire their homes and lead the poor people to homelessness.

               4)    Where it is going to hit the finance sector?

If only 100,000 homeowners are unable to pay their debts for one year straight in the form of mortgages, the banks will eventually acquire these houses and will get 100,000 empty homes and would be waiting for potential buyers or investors to buy these empty houses.

And increasing that number of empty houses to 500,000 per year due to the minimum wage settings banks will have a huge set of supplies and very few sets of demands leading banks to reduce the market price of the houses and make them less profitable and also in this same scenario the banks are not getting paid in the form installments by the house owners and builders.

Leading the situation to bank panics and eventually burst out the financial crisis as the banks are on a verge where they only have empty houses and no liquidity for those houses and also the investors would also, pinch out their money from the banks leading the banks to file bankruptcy and having said that the total number of scheduled banks operating in Pakistan is 34 and if only 10 banks file bankruptcy this will create a black hole in the economy of Pakistan which will lead to the financial crisis.

The same situation happened to the USA in 2008 and to save their economy the government initiated a bailout plan of 770 billion US dollars.

Epilogue:

The government of Pakistan initiates this program very carefully as it is not just a matter of basic economics but also a matter of human emotions and we Pakistanis have already been betrayed by our last choices and we are putting our faith in our Prime Minister and his team.

Note: This article only highlights the questions about the NPHP and the sole purpose of the article is to get answers and not to demoralize the scheme. Being a patriot I am only writing to aware of my government and beloved people of this very own country.

May ALLAH bring Happiness to our homeland and give us the sheer determination to help each other Amen.

                              Pakistan Zindabad Pakistan Paindabad.