Construction: Rising prices, regulatory hurdles hamper activity

[Salman]

Construction: Rising prices, regulatory hurdles hamper activity



For builders and developers, 2011 was marked by slow business, rising input costs, bureaucratic hurdles, land grabbing and harassment at the hands of tax authorities.

According to the International Housing Finance Programme 2008, the housing backlog in Pakistan is seven million units. However, the Association of Builders and Developers of Pakistan (ABAD) – which represents over 700 builders from across the country – say the national housing backlog is expected to have reached up to nine million units in 2011.

“Housing shortage in the country goes up by 300,000 units every year. About three to four hundred thousand housing units are built every year while the annual demand is between six and seven hundred thousand units in Pakistan,” said ABAD Vice Chairman Arif Siddik.

Home financing

ABAD Chairman (South Region) Saleem Kassim Patel says double-digit inflation and high interest rates in 2011 made it impossible for lower-middle class and middle class people to buy property. He said efforts should be made to make home financing affordable, and its procedure less cumbersome, especially for lower and middle classes.

“Commercial banks have developed negative lists vis-a-vis professions of potential customers and the areas where they want to buy property. This practice limits financing options and hurts both general customers and the construction industry,” he said.

Commercial banks provide home financing in big cities only. The House Building Finance Corporation (HBFC), however, operates in over 90 districts of the country. Commercial banks tend to finance housing purchases and avoid new construction finances because of the perceived risk. It is estimated that the average loan size of the banking sector in home financing is nearly 10 times of the loan size at HBFC, as 80% of the latter’s housing finance is for new construction.

Holding the industry back

A significant rise in cement prices increased the cost of doing business for builders in 2011. The 30% increase in cement prices over a seven-month period was in spite of the reduction in the fixed excise duty from Rs700 to Rs500 per ton while the government vowed to do away with it entirely in two years.

The government also decided in 2011 against giving gas connections to new high-rise buildings to control gas shortage in the country. The decision drew condemnation from industry representatives who termed it short-sighted. “All it’ll do is drive away investment. Why is it meant for high-rises only? The ban is simply ridiculous,” Patel said.

There are 15 under-construction high-rise buildings in the country. Seven of them are in Karachi.

With the rise in threats to builders in the form of land grabbing, encroachment, extortion and demolition of site offices, a Crisis Management Cell was established in Karachi on the directives of the federal interior minister in 2011. However, industry sources say the measure wasn’t effective