The fate of Naya Pakistan Housing

It is bewildering, really, walking into the headquarters of the Naya Pakistan Housing Development Authority (NAPHDA). Tucked away in a corner of the secretariat, the building is a maze of open-floor plans all around a central courtyard from which one can look all the way up to the top floor. Fit an escalator in the middle and it might as well be a mall. But when you look around, there is nothing but top-of-the-line furniture and office decor that could compete with any corporate headquarters in Pakistan. Inside, men bustle about in suits. From outside, though, the place is a veritable fortress. Guests surrender their phones upon entering (all interviews were strictly off the record), protocol officers in shalwar kameez and waistcoats follow on the heels of an army of retired generals that run the place. 

For a building to simultaneously seem like a shopping mall, a corporate office, and a nuclear facility is some feat, yet that is exactly the overbearing presence it has. Formed in 2018 NAPHDA’s function and purpose is cause for nearly as much cognitive dissonance as the building that houses it. Officially, it is a government owned and run corporation meant to organise the development of real estate projects and manage construction backed by the state. In less official words, it is the bureaucratic conceptualisation of a dream. The dream of five million houses made for, and ready to be occupied by, low-income groups subsidised by the federal government.

This is not a fix for homelessness in Pakistan. It is also not in any way an antidote for the increasing urban sprawl our cities face and the many slums, shanty-towns and other informal settlements that dot our maps. Instead, it strikes at the heart of a much more crucial and molecular desire — apna makan. In Pakistan, building a home is an elusive yet common dream. It is one that most people do not get to enjoy. Whether it is to move out of a congested living space, for social mobility, for peace of mind, or to raise a family-there is a demand (read: desire) for homes. 

The brainchild of former prime minister Imran Khan, Naya Pakistan Housing’s end-goal was to provide five million units of ready-built homes that people could buy at a standard rate. To achieve this, NAPHDA set out on an ambitious string of public-private-partnerships, reducing the cost of building by standardising design, cutting down approval times, and most importantly working with private banks as well as the SBP to provide longer-tenure loans at a set, subsidised, interest rate. 

It was an ambitious plan. It was a bold plan. It was a wild plan. Progress has been slow — painfully, shockingly, eyebrow-raisingly slow given the promises that had been made, all while NAPHDA as an organisation has been bleeding over a billion rupees every year in salaries and operating costs.

Some of the culprits behind the slowdown have been typical. With large-scale projects of this sort very little ever goes according to plan. But this is also a very complicated story. There are many players in this, from the government, to private real estate developers, to the State Bank of Pakistan — all have contributed to the host of problems that have plagued this project. Unforeseen circumstances, changing economic realities, and lukewarm reception from the public have all amalgamated into this project very quickly descending from its eager beginnings to dressing up numbers to try and justify itself.  

The NAPHDA model 

The dream has not quite gone according to plan. In the nearly four years that the PTI was in government, a report submitted by NAPHDA to the Senate shows that 172,489 housing units have either been completed or are under-construction. That is 3.4% of the 5 million end-goal. But we must begin at the very beginning. Back when this was simply an idea that was conceived. Before it took shape. 

And that takes us back to a single question: what does the government mean when it says it wants to build five million houses for lower income groups? The government does not have the time nor enough resources to build these houses themselves. It is an attractive and easy thought to want the government to take up the job of building these houses all on its own, but that would be a near impossible task both because of its scale and the vast inefficiencies that exist in government function. 

So what does the government do when they want to provide five million houses but can’t build them itself? The Naya Pakistan Housing Project envisioned the solution to be an umbrella under which different public-private partnerships would be funded, supported, subsidised, and encouraged by the state to develop cheap houses for lower income groups. These houses, known as ‘Low Cost Units’ or LCUs would be built either by development authorities or private developers. Then, the general public would be able to take loans from banks on easy terms and low interest rates to purchase these homes. In short, the government would get the real estate industry to build these homes and then get the banks to provide easy finance to people to buy them.

To build these, NAPHDA has created a few different models under which this public-private partnership would take place. Under these models, NAPHDA would approach development authorities (like LDA or RDA), provincial governments, and private developers. 

Under the first two models things are pretty straightforward. Development authorities are already working on projects in their jurisdiction on land owned by the federal or provincial government. All NAPHDA has to do is ask them to register through the Naya Pakistan Housing Program and develop and construct a certain number of LCUs for the project. This would come with many perks for the developers. 

Since the cost of building is high, NAPHDA provides a cost subsidy per unit built of Rs 300,000 to eligible applicants registered through “Naya Pakistan Housing Program ” (NPHP). In addition to this, NAPHDA would then also coordinate with provincial governments for the provision of road, water and sanitation infrastructure up to the project site.They would arrange the end buyers and mortgage facilitie from the banks for the low income segment group. A 90% tax rebate on projects approved by NAPHDA would also be implemented. Since these projects then fall under the government, it would ensure that banks provide easy loans for customers to buy the houses that are being built. 

Picture it like this. If the Lahore Development Authority (LDA) was creating a housing project the government would ask them through NAPHDA to reserve a certain section of their project for Naya Pakistan houses. So if the LDA project is spread over 1000 kanals of government land, NAPHDA might ask them to reserve 60, or 80 kanals for LCUs. The government doesn’t have time to undertake the construction themselves, so they would ask banks to provide loans to the developers to make these houses which would then be sold to prospective buyers at a set rate. 

Why would the development authority want to do this? Because these LCUs would be built along a standard design by the developer with the guarantee that buyers would come. One of the biggest issues in any real estate development project is finding genuine buyers and populating an area. The government through the SBP launched schemes like the ‘Mera Pakistan Mera Ghar’ (MPMG) initiative which gives loans on good terms to people wanting to buy LCU homes. Since the loans are confirmed, the developers know that they will have customers and their society will be populated — meaning the roads will be busy, stores will pop up, and a community will develop. 

The story is much the same for private developers. In addition to approaching development authorities and government functionaries, the Naya Pakistan Programme also envisioned that NAPHDA would facilitate builders in development of housing projects on private land subject to that developer meeting requirements such as clear ownership and livability. These are two factors that are always a gamble in private real estate development. Now, it does not always make financial sense for these private developers to build LCUs. 

Under the MPMG initiative, housing units of either five marlas or less count as LCUs and come at a maximum cost of Rs 3.5 million. This would not always be a profitable equation, however, especially with inflation-driven rises in the cost of construction and the fact that most of these private projects take place in urban areas where land is not cheap. With the development authority projects, the government has the advantage of owning the land and only having construction costs. 

However, these private projects also get the earlier mentioned subsidy of Rs 300,000 per LCU to each developer for the first 100,000 units built, and something even more important: legitimacy. That means if NAPHDA allows a private society to build LCUs as part of the Naya Pakistan Project they are saying their appraisal of the project is that it is legal and trustworthy. And when the prime minister or the chief minister show up to inaugurate those projects, further legitimacy and marketing opportunities are created. In addition to all of this, private developers will be getting all the other perks such as the provision of road, water and sanitation infrastructure up to the project site, and buyers that have been approved for loans under MPMG to liven up the place.   

A string of disappointments 

Let us go to Islamabad for a second. Right through Constitution Avenue and to the upper house of the parliament of Pakistan. Here, on the 4th of August this year, NAPHDA presented a report to senators updating them on the state of the Naya Pakistan Housing Program. As we mentioned earlier, the figure quoted by NAPHDA was 172,489 houses either fully or partially constructed. Yet even this figure is not strictly speaking true, and NAPHDA seems to have gone to a lot of effort to try and accumulate this. 

A simple look at the report to the senate says a lot. In the progress update, NAPHDA has divided its work into five categories:

• Category A: LCUs being built in urban areas in collaboration with development authorities (such as the LDA), the Federal Government Employees Housing Authority (FGEHA), the Workers Welfare Fund (WWF). NAPHDA claims 53,758 LCUs have either been constructed or are under construction. 
• Category B: Projects in peri-urban areas built on land owned by the provincial government. The list describes 9,098 such LCUs. 
• Category C: Projects on private lands. These projects are built under the Naya Pakistan Housing subsidy scheme, through which the government has budgeted Rs 300,000 per unit to allow builders to build LCUs. The budgetary allocation was Rs 30 billion which means this subsidy can be provided for 100,000 units, unfortunately, it appears that developers have applied for this subsidy to build 10,633 units only. 
• Category D: Loans that have been disbursed for the building of housing units, which account for 25,269 housing units. 
• Category E: Housing units being built by the charitable foundation Akhuwat which amount to a final tally of 18,499.  

The reality is even bleaker. In actuality, this is what it looks like: 

• In category A, only 17,005 LCUs are under construction or in planning state. And of those, only 3,720 units are for the general public. The rest are for government servants.
• In category B, other than 839 units in Phase I which are under construction, all the other projects are either in planning phase or even earlier. As far as the 839 are concerned, they seem to be more rural than peri-urban. 
• In category C, with the exception of 1800 units in Bahria Enclave in ICT and 3000 units in Bahria Greens in Karachi, the rest of the 10,633 are all still in the planning phase or earlier. 
• In category D, none of the mortgages have been provided for LCUs. Rs.88 billion has been disbursed for 25,269 housing units. However, these aren’t all for LCUs. As per World Bank document, mortgage loans that have been provided World Bank coverage were for Tier 2 and Tier 3 houses. These loans do count as low-income housing, but they are not within the limits of the LCUs that have been specified by NAPHDA and thus do not count under their tally. 
• And finally, the 18,499 houses being built under Akhuwat. All of these exist, but Akhuwat provides financing for project where the borrower already owns the land or the unit and Akhuwat provides financing for adding units on the already owned piece of property. Thus, this has nothing to do NAPHDA.

In short, the already meagre figure quoted by NAPHDA of 172,489 is much smaller. According to our calculations, the actual number of housing units finished or under construction that are actually Naya Pakistan Housing Project units comes out to just under 20,000. If we say very liberally that half of the loans provided were somehow for LCUs, and also count all of the Akhuwat houses (that really should not be counted) – even then the total can be rounded up to barely 50,000 houses that have actually been built under NAPHDA.

All any of the senators really that were presented this report had to do was peer through the windows from their chambers and look out at the federal capital, which is supposed to be home to 30,918 of these supposedly complete or under construction housing units. Very briefly, NAPHDA followed a strategy of piggybacking off existing projects to try and prop up its numbers. 

For the details of how Profit got to these numbers, there is an accompanying piece with this story that lays out every single project that is under construction with the auspices of NAPHDA written by twitter native @2paisay. 

Read more: Decoding the progress of Naya Pakistan Housing

Without getting into too much detail (all of which can be found at the link below for those interested) what happened was that the project became a dud. NAPHDA was pinning its hopes on the facts that projects in this first category, the ones taking place with the development authorities and other government agencies, would help them pick up the pace and then private developers would get in on the action. But the private developers never took the bait. 

Why didn’t they bite? 

We began this article with a single understanding; that there is a desire in people for apna makan. The reality is that there is plenty of space for people to build houses if they so want, and plenty of cheap land too. However, most people want to live as close to the urban centre as they possibly can. Now that land is very dear to developers and quite pricey, so why would private developers sell cheap five-marla houses on the bidding of the government to the general public? 

Most developers have very honestly said that it does not make financial sense to be making low-income housing in these urban areas, which is why they would target larger clients. NAPHDA was hoping that the perks they were offering would be more than enough to convince private developers. There are two important aspects to this, and for that we will have to travel to Karachi. 

The idea was that projects on private land would be built under the Naya Pakistan Housing subsidy scheme. The Government of Pakistan had budgeted Rs 300,000 per unit to allow builders to build LCUs. The budgetary allocation was Rs 30 billion which means this subsidy could be provided for 100,000 units. Unfortunately, as has been detailed above and in the senate documents, that developers have applied for this subsidy to build just 10,633 units only. 

As per the senate list, there are 10,633 LCUs in this project spread out in ICT, Punjab, KP and Sind. As per NAPHDA website, all of these projects are in the planning phase with the exception of 1800 units in Bahria Enclave in ICT and 3000 units in Bahria Greens in Karachi.

In addition to this, however, NAPHDA and the government claimed that the banks would finance not just buyers that wanted to buy these houses, but would also provide loans to developers on easy terms. This is where things went wrong. Take the example of the Bahria Greens project in Karachi. 

A couple of years ago, the construction cost of an apartment in Karachi was around Rs 4000 per square foot. In a letter of eligibility from NAPHDA, the apartments that will be built by Bahria Town are almost 700 square feet. Apartments of this size should have been priced around Rs 2,800,000 two years ago. Since then we have had inflation in costs of cement, steel, labour costs, etc. which should take the cost of such apartments to at least Rs 3 million.

As this is Bahria, we will assume that with the negotiating power that Bahria has over contractors and the economies of scale that Bahria can bring to bear on the project, Bahria will be able to construct these apartments at Rs 2,600,000.

 If Bahria sells these apartments at cost i.e. Rs 2,600,000, the profit to Bahria will be the subsidy of Rs 300,000 per apartment that it is getting from the government. At Rs 300,000 per apartment, the subsidy ensures a profit margin of 11.5% and, based on our research, is paid in advance. Since the PTI was quite desperate to get this project out of the way, they would have paid it in advance anyway if it believes that Bahria can deliver the project.

Thus, if the project is approved by NAPHDA/GoP, GoP will be providing Rs 900 million (Rs 300,000 x 3,000 apartments) to Bahria Town as a subsidy in advance to construct these apartments. NAPHDA has issued this eligibility letter to Allied Bank Limited. Assuming the construction cost is Rs 2.6 million per unit as mentioned in the letter, the total cost of the project comes to around Rs 7.8 billion. The timely completion of the project hinges on if ABL is providing sufficient financing otherwise the number of units will be reduced. 

Moreover, the NAPHDA units are a small part of a private developer’s real estate project. For example, out of the 28500 units that Bahria Enclave is building, only 1800 are LCUs. Private developers are interested in this because the GoP is providing a Rs 300,000 subsidy. However, unlike the housing units that builders will build for the market, LCU units are for low income groups and low income can only afford these projects if commercial banks provide mortgages to buyers. 

Dream or reality? 

We would love to say that this was a swing and a miss. The reality is, NAPHDA has nothing significant to show for itself four years on. For starters, they have been really unlucky. Many of the projects detailed above have faced unusual delays, and on top of that the cost of construction has risen significantly in the past two years. Products such as cement have been hit by the super-tax imposition. Combined financials for 16 cement companies listed on PSX show the effective tax for FY22 stood at 42 percent compared to 22% in FY21. A quick run-down of numbers suggest cost escalation was passed on sufficiently through retention prices.

Private developers have thus shied away from participating, and the partnerships with other government functionaries have been victim to the very bureaucratic hindrances that they were supposed to be free from. In conversations with Profit, officials from NAPHDA have claimed that the authority was acting simply as a regulator and could not answer for the lack of progress.

“Our job was not to build houses but to make policies. NAPHDA is a corporation, which aims to manage the real estate development schemes and projects of housing,” they said. Interestingly, the authority on its website, while referring to the NAPHDA  Act, clearly writes that the objectives of its establishment included both construction and development. “Naya Pakistan Housing & Development Authority (NAPHDA) is a corporation established on 15 January 2020 through an Act of Parliament for the purpose of planning, development, construction and management of real estate development schemes and projects including housing,” the website reads. 

However, when the higher-ups of NAPHDA asked that if the authority’s job was not to build houses, then why do the authority try to create an impression in the data presented at various places that these low-cost houses were constructed by NAPHDA? The deputy chairman of the authority replied that when forums like the Senate ask for answers, they ask the authority to arrange all the data.

“We presented the data to the Senate regarding the recent low-cost housing construction, and we had instructions to collect all the data and make it available,” they said. On further questioning with specific details, they did allude towards how there is a wrong impression that these projects are there. For example, when asked that NAPHDA has claimed in the reply sent to the Senate that 1467 LCUs have been under construction in FGEHA-G-13 under the Naya Pakistan Housing Scheme but this project has started since 1996 (as detailed in the accompanying piece by @2paisay) the authority said that they did not have any provisions to take over an already under construction project in its domain. “We are giving a cost subsidy for this project so that people can get low cost houses. We are not saying that we have constructed these houses. Likewise, we have made a MoU with WWF that low cost houses can also be provided to the people. The workers who get the houses here live on rent all their life, but under Naya Pakistan Housing Project, they will be able to become the owners of these houses,” he maintained.

The reality is that the senate report is damning, and it is even worse that even those numbers have been made to look better than they are. At the end of the day, in terms of delivery, nothing has been delivered. 172,489 is a useless number. The bottom line is that there isn’t any value addition by NAPHDA as the numbers show. There may be something in the Public private partnership side where NAPHDA has issued letters but all those are in the planning stages. How can NAPHDA claim 170K LCUs when many aren’t LCUs, the SBP one and akhuwat ones have nothing to do with NAPHDA. 

This report was contributed to by @2paisay, who also wrote the accompanying piece detailing the project by project breakdown of NAPHDA’s report to senate.