Construction cost slide sets stage for revival of big housing projects

[Naveed Yaseen]

By Sabihuddin Ghausi
KARACHI, Dec 26: A stage to revive housing construction activities in Pakistan with a new zeal appears to have been set after the bursting of Dubai construction bubble, which is forcing more than 3,000 Pakistani investors with tons of money to look back again for new opportunities in their homeland.

Simultaneously, there has been a drastic fall in prices of steel products, cement and almost all construction inputs across the board in the domestic market. “It is an ideal situation to go a big way in construction,’’ observed a construction industry leader, who is convinced that if the government provides necessary leadership at the federal level to bring about cooperation and coordination of all stakeholders in provinces and at local government level and also between private and public sectors, there is no reason why a big jumpstart cannot be made in a short time.

“With a backlog of 8.8 million housing units, we need to construct at least 1.5 million houses in a year,’’ Muneer Sultan, a senior leader and one of the founder chairmen of Association of Builders and Developers (Abad) said. His assessment is that hardly 0.4 to 0.5 million houses are being added every year in the country, which is increasing the backlog pressure.

“Unfreeze land allotment for housing construction,’’ is one prescription being offered by Muneer, who said the government put a ban on land allotment to construction companies in 1997. The second prescription is to provide bank loans at low rates and finally the relief in taxation.

The current Abad chairman Babar Chughtai appreciated the tremendous amount of infrastructure development in Karachi by City Nazim Mustafa Kamal, which encouraged the builders to go a big way for construction of low-cost houses in suburbs like Surjani Town, and Super Highway. Construction of roads and bridges brought many of these far-flung areas close to the city hinterland.

But sometimes in September 2007, the Karachi Building Control Authority director general imposed Rs100 betterment tax on construction, which warranted an upfront payment from builders of Rs30 to Rs35 million plus Rs40 million as outer development charges.

Chughtai considers imposition of betterment tax in 2007 as one of the factors that forced builders involved in construction of housing projects in Surjani and other places to abandon their work and put their stakes in Dubai and elsewhere. “But now that betterment tax has been withdrawn and Dubai bubble has burst, we expect many of those builders coming back to re-start their projects,’’ the Abad chairman said.

He disclosed that his association has contacted the government at various levels and hope that since President Asif Zardari himself is a builder “we will get a positive response.’’

Abad is convening a meeting of builders with Sindh Governor Dr Ishratul Ebad on January 18 to raise relevant issues of the construction business.

In the absence of any policy guideline and regulatory framework the informal builders and contractors focused their attention mainly on the developed and settled areas of Karachi. Hundreds of housing projects have come up in Garden East, Garden West, Bhadurabad, Lyari, Agra Taj Colony, Nazimabad and North Nazimabad.

As a consequence, the infrastructure of most of these areas has crumbled down. Chughtai blames ‘informal builders’ for all these projects.

Only ten days ago, the KBCA is said to have cancelled permission of half a dozen projects in the old town areas with a warning to general public to stay away from booking any flat or shop.

Market analysts suggest a roundtable of all stakeholders to work out a framework for launching construction business in a big way because “low- cost housing and land allotment’’ have become a big scandal in Pakistan. Almost all governments -- elected, un-elected, military, quasi-military and political -- are blamed of patronising their supporters by giving them choicest lands in their areas either free of cost or at throw away prices.

Knowledgeable builders have many stories to tell how the “relevant powerful people” in various government departments and agencies handover documents of such ‘’questionable transactions” to their favourites at the behest of the government to the media people.

“The idea was not to expose misdoings of the government but to bring it under pressure for favouring others also,’’ a senior builder said.

The proposal is to make a transparent arrangement for allotment of land to established builders on a certain pre-fixed criteria and setting in place a mechanism of overseeing the construction of projects at all stages.

In Pakistan, the credit goes to private sector for launching low-cost-housing in Karachi in 1960. A private partnership company of a Christian and a Muslim builder constructed first such project near Garden, which still exists manifesting durability and quality of construction. The prices of flats then were in few thousand rupees as builders reduced their profit margins and made optimum land use. Many unscrupulous builders with proper connections spoiled the image of construction business, he alleged.

“How would one justify allotment of Rs20 billion land to a well-known UAE company in Pakistan by the previous government without adopting any procedure,’’ Munir Sultan recalled and said that the company has collected almost Rs5 billion from investors in Pakistan with no signs of construction of any building.

http://www.dawn.com/2008/12/27/ebr1.htm