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Islamabad: The International Finance Corporation (IFC) on Tuesday said affordable house building for low-income groups in Pakistan barely increased last year despite high demand, while the mortgage finance market remains critically underdeveloped.

According to a new study ‘Pakistan Housing Finance – Is there a business case for Financial Institutions’ from IFC highlighting opportunities in the country’s housing finance sector. The study highlights the need for financial institutions (FIs) to expand into housing finance across different income segments, particularly low and middle income households, and regions.

“Substantial volume in the mortgage finance market could also be tapped if FIs expanded their portfolios across different urban income groups,” IFC said in a statement. With a growing population of over 208 million people, Pakistan is in urgent need of new housing. Its estimated housing shortage stands at about 10 million homes and is expected to grow by 400,000 units per year.

Increasing urbanization, continued rises in the cost of land and construction materials, and low levels of mortgage lending have also all contributed to the country’s housing gap. Despite the acute demand for housing, the mortgage depth ratio, the total volume of outstanding mortgages to GDP, remains low at 0.3 percent, significantly lower than the South Asia average of 3.4 percent.

The report said it reflects the lack of housing finance products, the limited capacities of financial institutions, the lack of long-term funding, and legal and regulatory issues. “IFC’s study highlights the need to open up housing financing for different customer segments in Pakistan, which is a critical component of the country’s Covid-19 response and recovery,” said Shabana Khawar, IFC regional head of operations for Afghanistan and Pakistan.

“Spurring private sector participation in mortgage finance is also vital to create a new market to boost competitiveness, growth and inclusion.” Tackling the country’s need for housing is one of the key pillars of the government’s National Financial Inclusion Strategy, which IFC and the World Bank have been working together to support.

That has included advice and financing for the country’s first private sector-led housing finance institution, the Pakistan Mortgage Refinance Company (PMRCL). The statement said IFC has also supported reforms on foreclosure laws, the Real Estate Regulatory Authority Act, and housing finance company regulations in Pakistan.

IFC’s current committed investment exposure in Pakistan amounts to approximately $1.2 billion in 47 companies, across sectors including power, infrastructure, financial markets, and manufacturing, agribusiness, and services.