ABAD for forming body for increasing growth

[Salman]

ABAD for forming body for increasing growth

KARACHI: There is a dire need to form a committee of experts from construction-allied sectors to make a feasibility study for the growth of the construction industry and voice their concern on the law and order issue.

Association of Builders and Developers of Pakistan (ABAD) Chairman Mohsin Sheikhani talking to Daily Times said efforts are underway for such implementation.

He said we do not require any subsidy from the government, but long-term friendly policies and peaceful atmosphere to attract investors as even the foreign investors are not interested.

The building material index at 10.6 percent of large-scale manufacturing (cement, steel, paints, glass and plywood) is an indication of the consumption pattern of only five major building materials used in the construction industry. The affected building materials include cement, steel, glass, paints, electrical goods, sanitary ware, electrical fittings etc.

The price of cement exhibited a steep upward trend due to low demand of construction industry. All Pakistan Cement Manufacturers Association (APCMA) statistics stated annual and monthly cement dispatches are increasing as compared to the same periods in the pervious fiscal years but overall local and export dispatches not crossing even 80 percent of the production capacity for the last three years is the sole reason for its price increment. The current per capita consumption of 131 kilogrammes (kgs) of cement in Pakistan is the lowest in the region as compared to the world average of 270 kgs.

The steel consumption is less than 37 kgs per capita on average as compared to the world average of 200 kgs per capita. Rising oil and steel prices in the international market along with the depreciation of Pakistani currency has added to the woes of builders, resulting in increased cost.

The disturbed supply and upward revision of power tariff has also added to the suffocation of the building industry. Sui Southern Gas Company (SSGC) has announced freeze on gas connections for high-rise buildings affecting the development of construction industry.

The Karachi Electric Supply Company (KESC) has been facing power shortage and applications for new connections have been pending for a long duration. Even under self-finance scheme, the connections have not been provided though the applicants have made full payment. This situation has also affected the delivery of housing units and the construction industry is finding it difficult to hand over projects. The unannounced and long duration load shedding affects the level of activity in the construction industry. The Katchi Abadi can get a connection for Rs 7,000 to Rs 8,000 but for a newly constructed apartment the charges are Rs 100,000 to Rs 150,000 for electric connection, which shows their apathetic attitude towards the construction industry.

Availability of finance on easy terms is the basic requirement for development and expansion of this sector.

Pakistan’s banking system is arguably one of the most under-leveraged in the world. The State Bank of Pakistan (SBP) statistics reveals the Credit to Deposit Ratio (CDR) has been reducing from over 70 percent in the fiscal year 2007-08 to approximately 50 percent at present.

Assuming an average cost of a housing unit equivalent to Rs 4 million and 55 percent CDR, 100,000 housing units costing Rs 400 billion at maximum could be financed over a three years period ending fiscal year 2012 spread over 100,000 borrowers.

Such a productive investment would also impact the immediate large-scale employment generation, production ramp up for about 38 industries, incremental sales tax, income tax growth throughout the housing related value chain, minimal negative impact on current account and securitisation of housing mortgage. The building and construction sector has been used as a preferential choice to reverse the recessionary trend and help in the revival of economic activity across the world but still is in the neglected state in Pakistan and has remained under developed.

Instable law and order, non-availability of financing facilities, sales tax imposed on builders and rising building material prices is causing the survival of investors in construction sector. About 42 complaints were received from ABAD members in past four to six months for land grabbing, encroachment, extortion and threats.

Rising population of the country demands 800,000 housing units annually but only 300,000 houses are built per annum. The backlog has compelled the people to go for slums and Katchi Abadis. Several other reasons including increasing trend towards urbanisation, unprecedented increase in population, mass scale legal and illegal immigration, etc exist behind this situation. These factors also result in rapid growth of social evils and criminal activities growing beyond the control including land grabbing, encroachment, kidnapping for ransom, threats etc.

The housing needs for Karachi region based in conservative estimates are 126,000 housing units per annum. The urban housing need in the country is estimated at over 3.1 million and the figure is increasing due to increasing trend of urbanisation and legal and illegal immigration.

Sindh sales tax on services by property developers or promoters will be unbearable and would increase inflation if passed on to the end users, mostly lower-middle class. The mortgage-to-gross domestic product ratio is only 1.0 percent in Pakistan as against 86 percent in the United Kingdom.

National Housing Policy was formulated in 2001 based on the recommendations of Housing Advisory Board including ABAD as its member to promote housing by providing incentives to bridge the increasing gap between supply and demand but implementation of