Real estate sector should borne less taxes
Low cost housing a stimulus for socio-economic development
Interview with Mr Ahmed Owais Thanvi — Managing Director, The Kings Group Builders & Developers
Mr Ahmed Owais Thanvi is the Managing Director of The Kings Group Builders & Developers. He is also a member of the Association of Builders and Developers (ABAD).The Kings Group Builders & Developers is a Construction Company with a nationwide operation in Pakistan since 1977. The Kings Group Builders & Developers provides high quality services to their valued clients, across all sectors and have set a strong benchmark for the industry. Based in Karachi, Kings Group provides a comprehensive range of services to a wide range of clients.
PAGE: What are your views on the construction sector?
Ahmed Owais Thanvi: The construction industry is playing an important role in the economic growth of Pakistan. Construction, a term that encompasses activities related to the creation of physical infrastructure and related activities, plays a crucial role in the economy of any country. The construction industry is in a developing stage in Pakistan. There is an urgent need to eliminate bottlenecks such as corrupt practices in the industry, carry out extensive computerization of land ownership records for greater transparency, improve land regulation and building control, standardize and implement building laws across the board and impart latest skills to students for the future of the industry.
The signing of the China-Pakistan Economic Corridor (CPEC) agreement and improvement in the country’s security situation have been the key to giving boost to not only the construction industry, but Pakistan’s image abroad. With China having the first-mover advantage in injecting foreign investment into the country, other countries have followed suit.
PAGE: Your views on the cost of construction today as compared to decade ago:
Ahmed Owais Thanvi: Like the price hike in every other item, there has been a continuous and fast rise in the cost of building materials, which in-turn has elevated the total labor and per square construction rate in Pakistan. This year, you can observe a considerable difference in the overall rates of construction sector as compared to the year 2008, 2009 and 2010, which includes – the cost of building materials, labor cost and overall cost of construction. Before planning to construct a residential or commercial building, you must be aware of the approximate cost of construction materials as it would help you drawing a rough estimation of the total charges. While taking a personal round of your nearby market, you should also consult a modern architect in Pakistan. The overall construction cost per square ft. is divided into two categories – the one is grey construction cost and the other is turnkey construction cost which includes complete construction work. The lowest construction rate for per square ft. is Rs.1800; whereas the maximum cost goes up-to Rs.3400 per square ft.
PAGE: How would you comment on the price of land and the affordability level of the masses in Pakistan?
Ahmed Owais Thanvi: House price to income ratio is determined by calculating the total number of annual incomes required to buy a home. For example average house price is Rs. 10,000,000/- and average annual income is Rs. 2,000,000/-. So house price to income ratio is 1:5 as people have to pay 5 years income to buy a house. This simple formula is used worldwide to calculate the affordability. When house price to income ratio is 1:5, it is considered as the affordable housing market. If the house price to income ratio is above 1:5 then the housing market is unaffordable and when ratio is less than 1:5 then housing market is considered as very affordable or highly affordable.
There are two main reasons of high house prices in Pakistan. Firstly, Pakistan is facing the severe shortage of housing. We are building just 150,000 new houses every year where as our requirement is one million units. Secondly, Pakistan real estate sector was used to park the black money. The huge investment into real estate sector has abnormally increased the house prices. There are many disadvantages of high house price. Firstly high house price decreases the home ownership. Secondly people can’t rent a decent home. Thirdly, high house price decreases the incomes of realtors due to the low volume of real estate transactions. Fourthly, high house price also reduces the profit margins of real estate developers.
House price to income ratio in Pakistan can be controlled in three ways. Firstly, we need to increase the average salary in Pakistan to increase the buying power of common people. Secondly, houses can be made affordable by blocking the influx of black money into reality sector. The new tax reforms by government have resulted in reducing the property prices. Thirdly, house price to income ratio can be decreased by building more affordable housing units or affordable homes in Pakistan.
PAGE: Kindly tell us about the taxation issues being faced by the Construction and Real Estate sector in Pakistan:
Ahmed Owais Thanvi: The real estate sector is playing a key role in the economic development of the country. Construction industry is facing problems due to imposition of heavy taxes and it has urged the government to rationalize them to facilitate the growth of business activities.
The construction sector is providing jobs to millions of people, while more than hundred allied industries dependent on it, therefore, the taxes on steel, cement, coal and other commodities should be reconsidered. The government increased the federal excise duty on cement and regularity duty on coal in the last recent two budgets, which is set to damage the construction sector. That decision increased the construction cost and increased in the rent for domestic and commercial property.
PAGE: Your views on the low cost housing in Pakistan:
Ahmed Owais Thanvi: The property market in Pakistan has grown exponentially over the past three decades, pushing housing beyond the reach of middle-class couples starting a family. Low income housing is not only a basic social need but also a stimulus to the economic development of a country. Despite being such an important agent of economic growth, it is the least discussed area in socio-economic advancement in Pakistan.
The gap between supply and demand of housing is approximately 9 million units, continuously increasing by an estimated 0.7 million units per year. Furthermore the situation is adverse in urban areas due to rural urban migration. The study identified the inability of the people from low income strata to own assets preventing them from securing loans and thus making the construction of their house extremely difficult. The construction and housing sectors have forward and backward linkages with almost 70 to 80 allied industries and a large percentage of the unskilled labor is linked with this sector.