Construction activity fails to pick up despite reduction in steel prices

[Naveed Yaseen]

By Aamir Shafaat Khan

KARACHI, Jan 19: Despite cut in building cost with steep fall in steel bar prices and some stability in cement rates construction activity has not picked up.

Builders feel that economic and political instability, law and order and red tape are discouraging investors and public to take risk in the real estate business.

At the end of last month many projects had been launched but the builders attributed it primarily as a part of the strategy to avoid encroachment on empty plots by the land mafia. The builders, who had introduced new projects, were forced by the situation in the city to start some activity on such plots like opening offices, developing the land or posting some security guards at the site in order to secure the land.

Currently, only renovation of houses and bungalows are taking place. Some people are building additional floors to accommodate expanding families as they think that this is the right time to construct after dwindling steel and cement prices.

Consumers had paid Rs70,000-80,000 per ton for steel bars and up to Rs395 for a 50 kg cement bag till early Ramazan 2008. Now the price of steel bar hovers between Rs50,000-54,000 per ton, while cement price ranges between Rs330 to 350 per bag. These two items hold 50-60 per cent share in the overall construction cost of any apartment project or a house.

Chairman Association of Builders and Developers (Abad) Babar Mirza Chughtai said many builders had retrenched 30-40 per cent of their office workers, labour, supervisors and site workers owing to downfall in construction activities.

He said falling steel and cement prices are not the core issues that could enliven hope among the investors. Actually, investors of real estate are looking forward for a congenial business environment to invest.

He said the government still felt that the builders and developers were the biggest “cheaters and looters” of public wealth and this sector needs to be taxed heavily.

One of the IMF’s conditions relates to imposition of new taxes or effecting increase in their current rates.

“How could an investor launch a new project after hearing IMF’s conditions,” he said adding that the government does not realise that the construction sector would collapse leading to massive unemployment if the investors stop investing in construction sector. Besides, more than 70 allied industries would go down the drain.

He said any increase in taxes will make the projects costlier and people, already burdened with high cost of living, will avoid investing in new housing projects.

None of the government’s housing projects met any success in yesteryears and its share is less than 10 per cent of the total housing industry in the country, he said adding that majority of the housing demand is met by the private sector but the government continues to ignore it.

As far as mortgage of homes and housing finance by banks are concerned, they have minimal share of less than five per cent in Pakistan as common man does not have any approach to this facility owing to cumbersome procedures.

He said that the main beneficiaries of these loans were some rich industrialists and people living in posh areas and these loans have been misused by them.

Mr Babar said that many investors were still trying hard to pull out from Dubai and Ajmaan, where their billions of rupees had been struck. In case they come out they would surely think twice before investing in Pakistan after IMF conditionalities.

Former chairman Abad Hafiz-ur-Rahman Butt said there was definitely a demand for houses or flats and people, having money, are waiting for suitable time to invest but they still lack confidence on the government and its future.

Many people, who are trying to own a home after fall in property prices, are finding it hard to make some saving as rising cost of living caused by high food inflation and utility bills virtually are eating up their entire hard earned income.

Butt said many customers, who had booked projects last year, had failed to give timely installments owing to liquidity crunch caused by rising living expenditures.

General Secretary All Pakistan Tiles and Sanitary Merchants Association Mohammad Amin Lasania said that the sales of sanitary items had dropped by 60 per cent in the last three to four months due to thin construction activities.

He claimed that import of sanitary items had also fallen sharply in the last few months as importers are not placing orders after lull in demand.

However imported sanitary items had become costlier after imposition of 10 per cent customs duty and 15 per cent regulatory duty last year.

President Karachi Iron and Steel Merchants Association (Kisma), Shamoon Baqar Ali said thin construction activities had definitely slowed down the sales of bars.

A leading cement maker and exporter said that sale of cement has declined by 15-20 per cent in the last one-and-a-half-month as economic conditions have hit the construction activities.

http://www.dawn.com/2009/01/20/ebr1.htm