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Housing market in Islamabad.

Housing Market in Islamabad

Ever since Islamabad came into being, housing market in the capital has not been very smooth. There has been always gap between demand for and supply of houses. The demand has always outbid the supply. But since few years the situation has got worst even more. The reason being simple that more and more Ministries/Departments/Institutions have tried to move into Islamabad, from various cities of Pakistan especially from Karachi, compared with the development of housing capacity in the city. This has resulted in the acute shortage of houses for the government servants, despite the fact that some Federal Government offices are in Rawalpindi. Many Government servants working in Islamabad have to live in Rawalpindi. This does not only create inconvenience for them and effect the efficiency of offices but it also causes severe traffic problems on the only road linking the two cities. The pace of building more accommodation is very slow. In the early 80s planned housing capacity in Islamabad city was for 149,205 persons when sector G-9 is excluded and for 179,840 persons when sector G-9 is included in the total housing capacity. Whereas urban population of Islamabad, according to 1981 census, was 204,172 pesons. This means that in the early 80s, the gap between demand for and supply of housing in Islamabad was 54,967 (when Sector G-9 is excluded) or 24,332 (when Sector G-9 is included in the total housing capacity). Over the past few years two more sectors have been developed but the population is estimated to have crossed the mark of 550,000 with the city component placed at 380,000.

The gap between demand for and supply of housing in Islamabad has considerable impact on rents as well as on prices of houses in the city. It has led to upward trend in the rents and prices of houses. Apart from the gap between demand and supply, there have been other factors which have made considerable contribution, especially in the recent years, in the worsening of housing position in Islamabad. These factors are discussed below:

Prior to Russian invasion of Afghanistan and subsequent influx of Afghanis into various cities of Pakistan, housing market in Islamabad was relatively calm and smooth. But as the Afghanis started arriving in Islamabad rents as well as prices of houses went up suddenly. The rent, for example, of a three bed room 30x50 house went up from Rs. 600-800 per month in 1978-79 to Rs. 1000-1200 in the late 70s and early 80s. Since the arrival of our Afghani brothers, the rents have shown upward trend much steeper than ever before.

It should be noted however that Afghanis have not effected the whole of housing market in Islamabad. As they have tended to live in relatively cheap sectors, the old and relatively expensive sectors have not been directly affected by their arrival. But their impact has been considerable in G-8, G-9 and G-10 sectors.

Second blow came in the housing market in June 1985, in terms of rents and prices, when maximum rent ceilings were raised, for example, from Rs. 1500 to Rs. 2250 (in case of NPS-17, 18). This led to sudden increase in rents of all kind of houses within short period of time. for example, rent of 3 bed room 30x50 houses went up from Rs. 1500 per month to Rs. 2500 per month. And yet another blow came in January this year with another round of rise in maximum rent ceilings. When, for example, maximum rent ceiling was raised from Rs. 2250 per month to Rs. 3000 per month (NPS-17, 18). The landlords, once again, adjusted the rents of their houses accordingly. And this time rent of 30x50 house, for example, was raised from Rs. 2500/month to Rs. 4000/month. The new increased ceilings created artificial as well as real deman for housing in the capital. Almost every one right from grade one to 22 tried to hire a house. This is so firstly because the new ceilings were much higher than the old ones and secondly because the new ceilings were higher than the basic pay in almost all cases with the exception of NPS-1,2,19,20. (New Ceiling June 1985). In case of these grades the ceilings were close to the basic pay but in all other cases it was higher. For some grades the new rental ceilings were considerably higher than their basic pay. This can be seen from the table on Page No.

The table shows that there are lot of incentives for the employees to get the maximum ceilings and therefore hiring of houses. This is so because employees take rents as part of their salaries. They take it as their right to get that amount by fair or otherwise means. There are cases where there is false hiring of houses or the same house being hired by more than one person. This is due to incentive provided by the rent money.

One thing to be noticed here is that while increasing the rental ceilings for the hiring of private property in Islamabad and elsewhere, the intention of the government has been to help the government employees as most of them were facing acute problems in respect of rents. They had to pay something out of their own pockets to make up the full amount of rent demanded beyond the ceilings. But the new increased ceilings have not helped the employees but the landlords. In fact the position of employees has gone worst as the following example will show. In 1985 before the revision of rental ceilings a typical 3 bed room 30x50 house could be hired for Rs. 1500 to Rs. 1700 per month. But as the ceilings were increased from Rs. 1500 to Rs. 2250 (for NPS-17, 18) rents went up from Rs. 1500 per month to Rs. 2500 per month for the same kind of houses. This means increase in rented ceiling of 50 per cent led to 67 per cent increase in rents. Similarly the recent round of rise in ceilings have made the employees even worst of. This can be seen from the following example. For the employees of NPS-17, 18, the ceiling was raised from Rs. 2250 per month to Rs. 3000 per month but the rent of a 30x50 house went up from Rs. 2500 per month to Rs. 4000 per month. This mean the rise of Rs. 750 in ceiling has led to rise in rent of Rs. 1500. now if one was paying previously Rs. 2500 per month is forced to pay Rs. 4000 per month for the same house or leave. In other words the overnight increase in the rent ceilings benefited the landlords leaving the employees no more better off than before. Still they have to pay money from their pockets to make up the full amount of rent. That is why it has been argued by some quarter that the rise in ceilings was not meant to benefit the common government employees but the real reason was to benefit the top officials in the bureaucracy. This is so because they have their own houses in Islamabad which they could rent out or hire themselves on higher prices. Those officials who got more than one house are even more benefited as they could let their extra houses on higher rents thanks to the new increased ceilings.

An institution which has played very important role in the continuous rise in rents in Islamabad is the institution of property Agents. Given the scarcity of houses in Islamabad, property agents have exploited this situation at the maximum. In order to outbid their competitors they promise to the owner of higher and higher rent. Landlords being economic men prefer the tenants who offer the highest rent. It is in the interest of property agents that the rent fixed through their institution is the highest as they charge a month's rent from both the parties fifty fifty. In fact, in many cases this is not true any longer. This is so becuse so many property agents have emerged in Islamabad. They all have their boys wondering around the streets to find empty houses. Once an empty house is found the boy will approach the owner to get his approval for hiring his house. The agent will try to convince the owner that if he rents his house through his agency he will get him the maximum rent possible. Similarly other people from other property agencies will also approach the same owner. All of them will try to convince him that they will get him the maximum rent for his house. Faced with such situation and severe competition among the property agents normally the owner will tell the agents that he will not pay his share of fee when the house is finally rented. This condition is easily accepted by most of the agents. Then it is only the share of tenant which the agent will charge. Therefore it is in agent's even more favour to get the rent fixed as high as possible.

So far we have talked about the causes of problems in the housing market of Islamabad. In the following pages some remedies have been suggested to deal with the situation. The first thing is that our government could do is to remove from Islmabad all those people who are not supposed to be there. In case of Afghanis they must be taken back to camps where they must stay until circumstances are favourable for their return to their homes. We pray for the defeat of foreign backed regime in Afghanistan and honourable return of refugees to their homes. This is one of the essential steps that has to be taken in order to ease the housing market in the city.

Another solution to the housing problem is that new sectors should be developed. No new department/institution should be shifted to Islamabad until it is made sure that there is sufficient housing capacity in Islamabad to house the new people. Establishment and bringing in of new department without considering of the housing capacity of the capital is no good.

One solution suggested by various quarters is that in order to speed up the development of various sectors in Islamabad the time limit for the construction of houses must be reduced form five years to says three years. It has been argued that many people buy plots from CDA simply to dispose them off at a higher price later on. Those people who do not build their houses with in the prescribed time period their plots may be taken back by paying the money the paid for the plots. Another somewhat related solution is that CDA must stop selling bigger plots. The sizes of plots must be kept low to meet the future needs of the capital.

It is commonly heared that if you are employee of CDA you have no problem of getting a plot no matter what your grade may be. But if you are in some higher grades you could have more than one plot and in some cases much more than one. This practice is also making its contribution in worsening the housing market of Islamabad. The concerned authorities should take firm action against such people and this practice must be stopped one for all. Similarly, there should not be any quota reserved for politicians. This is certainly a bad practice with far reaching consequences.

Probably the best solution to housing problem is the construction of houses by the individual Ministries/Departments/Institutions for their employees. This could be an expensive exercise in the short run but probably the most economical in the long run. There is no doubt that investment in housing has never been very profitable but for individual Ministries/institutions, while constructing the houses, the eyes should not be on the short run economic return but on the long run facility for their employees. While building homes care should be taken to build more spacious houses with the given piece of land. Building of flats of four/five storeys is not bad idea. Flats with moderate height are economical and more suitable in the long run. these houses/flats however, should not be allotted to employees on ownership basis. The employee should vacate the house once he is retired from his job. Giving away houses on ownership basis would require tremendous amount of resources for this sector only. Being a poor country means the abandonment of this activity altogether.

Another solution demanded by various parties especially the shopkeepers is the introduction of rent control act in Islamabad. This is not a bad ideas as in most of the cities/towns of Pakistan this act is in operation. The main argument presented against the introduction of this act in Islamabad is that it will halt the development of the capital which is no good for a new city like Islamabad. These arguments are valid to some extent but having rent control act in Islamabad is more beneficial. As a matter of fact by the introduction of this act would have little impact on general public but those who made their fortune by building many houses/buildings in the good old days.

Turning to the property agents it has been suggested that an amount may be fixed as a fee of the property agents for each type of house. For example fee for a 30x50 house with 3 bed rooms attached baths drawing dining etc. may be fixed at Rs. 500, if the agreement is for 2 years. Similarly fee can be fixed for other types of houses/banglows which an agent may charge from the both parties equally and no more. This act, on behalf of CDA, will remove the incentives for the property agents to increase the rent for the lodgers thereby making contribution in the fast increasing rents of houses in the capital.

In order to neutralise the contribution made by the estate agents it is suggested that CDA may establish her own estate offices at various points in the city. A particular office may be run by a single person whose job is nothing but to hand over a printed form to the prospective tenants or land-lords. The form may contain various questions. For example address of the house (if it is filled in by the land-lord) rent demanded, number of beds, baths, drawing, dining etc. etc. In this form the landlord could write all the details about his house. This form should be displayed on a board in the office. The job of the man in the office is no more than to help display that form. These offices could be self financing as some money may be charged as fee for the display. this fee should be minimum no more than, says twenty rupees per week. If someone needs a house to rent or to buy he could go to the one (or all) of these offices and find the kind of house he is looking for. If he finds one he does not have to ask anything from anyone but to write the address/phone from the form and contact the landlord/owner. If, however, the prospective tenant/buyers finds no house of his taste he could take tenant/buyer form, fill it up by stating his requirements and hang it on the board by paying the fee required. Now if some landlord/seller finds the offer suitable for his house he can contact the tenant/buyer. This scheme makes the role of estate agents virtually nil. Therefore, we can remove the institution of estate agents which is much to be blamed for rising rents/prices in the capital.

Last but not the least (and probably the best) solution is to give in hand the maximum rent ceilings to the employees, leaving up to them where and in which kind of houses they would like to live. This will reduce the pressure on housing market in various ways. It will remove artificial as well as the real demand for housing created by increased rent ceiling for a given basic pay scale. People especially at the lower end of the National Pay Scale would try to hire such houses where more than one families could be accommodated with minimum money spent. This will also eliminate false as well as double hiring of houses. Some people will simply not hire a house if they do not need it. Some people would prefer to live in Rawalpindi. Those people who come from not very far off places may prefer to commute daily instead of hiring a house and living in Islamabad. By giving away the maximum rent ceiling to the employees will not particularly effect the treasury as almost all the people have already hired houses, at least in papers.

Before we conclude the it should be noticed that various solution suggested are not exclusive of each other. In fact almost all of them could be applied simultaneously. For example, the government could pay the maximum rental ceiling to the employees and at the sometime CDA could establish her own estate offices to help the people of Islamabad. In author's view the best way to deal with the situation in Islamabad is to apply almost all the complementary solutions suggested, simultaneously. This is perhaps high time that the government takes some positive step to ease the housing market in the capital and to help her employees who spend lot of their resources, time, thinkings in looking for houses.
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Title Annotation:Industry; Pakistan's rental rates and regulations
Author:Ahmad, Mehboob
Publication:Economic Review
Date:Oct 1, 1990
Previous Article:Attock Refinery Limited -- past, present and future.
Next Article:Growth of Pakistan's textiles exports under the shadow of quota restorations.

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