Dead money

Thursday, Jan 27, 2022

This refers to the news report ‘Banks tasked to raise house loans to 7pc of private advances till Dec’ (Jan 22). No information is available about the reason for increasing pressure on commercial banks to increase housing loans for which there is no effective demand, read need or economic justification. Expenditure on housing is a dead investment. The undue emphasis on construction of houses has already increased the prices of cement, steel, bricks and other raw materials. As a result, normal repair and construction activities have been reduced significantly. The expenditure will increase inflation and adversely affect the balance of payments as well due to increased demand for imported fittings.

The grant of loans for the construction of houses will not increase the income of borrowers. The payment of loan instalments will result in a decrease in demand for other goods and services, causing depression in the economy. Large-scale defaults can also not be ruled out. It is worth mentioning that the worldwide depression of 2008 was caused by excessive house mortgages in the US. A large part of domestic savings which should have been devoted to agriculture and industries have been blocked in the real-estate business. There is no need for sinking more funds here. There is a need to divert all available resources to productive uses.

Abdul Majeed