CONSTRUCTION INDUSTRY — CRUMBLING?
Small housing units deserve relaxation in tax survey campaign
By AMANULLAH BASHAR
Nov 20 - 26, 2000
The construction and housing sector, which directly provides jobs to over 7 per cent of the total workforce of the country and feed business to over 40 allied industries has come to standstill.
Multi-storied structures of a large number of housing projects are lying held up for want of funds as the House Building Finance Corporation (HBFC) has suspended disbursement of loans to housing companies for the last five months.
Jamshed Rizvi, the Chairman of Association of Builders and Developers (ABAD) says that the HBFC has suspended house financing due to legislation process taking place these days for Islamization of different mode of financing including the HBFC.
Consequently the construction industry is facing acute liquidity problems resulting in suspension of construction work in the half way. Apart from the incomplete projects, built up housing projects both flat, apartments and independent houses are also presenting a deserted look due to complete absence of the investors as well individual buyers staying away from the market.
Clarifying the situation, Jamshed Rizvi said that the tax survey campaign launched by the government has scared away not only the large investors, even the genuine but panicky individual purchasers from entering the transactions of housing units due to fear of survey forms. The panic caused by the survey has brought the investment climate to a total halt in the real estate sector.
Admitting the fact that most of the investment in the real estate sector was coming from the undocumented sector responsible for depriving the exchequer of the revenue. However the importance of the massive benefits accrued to the documented sector, as a result of this investment cannot be over ruled if one goes into depth. The most visible impact of such investment is visible from over 40 allied industries, which are fed by the housing and construction sector. These large numbers of industries are the component of the documented segment of the economy. Since these allied industries rise and fall with the construction and housing industry, the depressed conditions prevailing in the housing sector is also reflected in the noticeable downward activities in the allied industries.
In order to keep the wheel of 40 industries and the bread earning of a massive workforce related to construction industry, the government should come out with certain exemptions in the tax survey forms for a certain category of flats and housing units. He suggested that small flats and housing units generally belong to middle and lower middle class. In order to enable this class to have their own shelters on one hand and to carry on economic activities in this important sector on the other hand, certain relaxation are needed to be announced immediately.
Another factor causing crumbling effects on the housing and construction industry is the building bye-laws and town planning regulation 2000 proposed by the Karachi Building Control Authority (KBCA).
These bye-laws are likely to retard construction of 35,000 flat sites and blocking the huge investment worth over Rs35 billion in this industry. Jamshed Rizvi said that the building bye-laws proposed by KBCA are feared to paralyze the construction industry if they are implemented. Spelling out the serious consequences of the bye-laws Jamshed said that the construction industry which already sinking on various accounts may disappeared from the scene because of irrational prices of flats which may go even more than double. In its bye-laws, the KBCA has enhanced various fees and charges for getting approval before launching new housing projects.
For example, under the new proposed building bye-laws about Rs10 million would be required for approval of building plan, getting NOC and various other services charges to start a new housing project. Consequently most of builders would not be in a position to launch any new project; they would have no option but to close their business. With the implementation of these regulations the cost of flats and houses would increase manifold and it would be impossible for a common man to purchase a house for his family. In Gulistan-e-Jauhar and Gulshan-e-Iqbal only 74 flats having 1250 sq. ft covered area each may be constructed on a plot of 4,840 sq. yards. The total cost of this project would be around Rs115.24 million and the cost of one flat would come to about Rs1.93 million, which was currently available for Rs10 lakh only. In Clifton area the cost of such type of flats would be about Rs2.64 million and in North Karachi Rs1.51 million. Other increases suggested in the building bye-laws include architect's fee from current Rs1 to Rs5 per sq. ft, which is 500 per cent increase. Similarly structural approval fee had been increased to Rs0.70 from Rs0.40 per sq. ft, town planning fee to Rs2.50 from existing fee of Rs0.50. Environmental approval fee to Rs0.10 from existing Rs0.05 and completion and occupancy fee to Rs5 from Rs1.50. The NOC fee for sale had been fixed at Rs5 per sq. ft etc.
ABAD has however submitted its proposals to the KBCA and has sought intervention of the C.E. General Pervez Musharraf in the newly introduced unrealistic taxation structure.
Imtiaz Ahmed, one of the prominent real estate broker from Gulshan-e-Iqbal told PAGE that Karachi has been recently bifurcated into several zones for valuation purposes of the land. This zoning process is far from the market realities. For example, the official price of a 400 sq. yard plot in scheme 36 i.e. Gulistan-e-Jauhar is assessed at Rs10 lakh as the government has fixed the valuation price at Rs2500 per sq. yard. As this official assessment of land for the purpose of stamp duty at the time of transfer or registration, the same plot of 400 sq. yard is readily available at a price of Rs7 lakh in the open market. On one hand the government has reduced the stamp duty but on the other hand valuation price has been increased unjustifiably in different zones of the city. While dividing the city into different zones for assessment purposes, the locality of North Nazimabad has been placed under the category of zone A-1 and the valuation price of this zone has been increased to Rs3500 per sq. yard. Except a few blocks with large plots, the major portion of North Nazimabad belongs to the middle and lower class of population. Declaring this area under the category of A-1 is a cruel joke, which has stalled the real state business in this area. Government should come out with some remedy with a taxation policy based on facts. Imtiaz said that corruption is rampant in various government departments which not only creating untold hardships for the people but also depriving the government of actual revenue, the real estate transactions can contribute to the exchequer. He suggested that instead of raising the valuation price, an emergency fee be introduced such is in practice at Passport offices. People would be happy to pay the emergency fees for early release of documents for lease or transfer of the property.
According to an estimate, housing and construction sector provides employment to around 7 per cent of the total labour force while much more size of the people are earning their bread and butter from a large number of upstream industries of the housing and construction industry.
It is significant to note that as many as 40 allied industries including cement, steel, aluminum, PVC, paints, sanitaryware, glass, wood, electric accessories, cable, ceramics etc generating economic activity at a massive scale in the country. Marble tiles and crushing is another related area with the housing construction industry generating business and job opportunities to the people from Balochistan to Gilgit. This economic activity is directly attached with the rise and fall of the construction industry contributing significantly to the national exchequer.
The government which plays a leading role as a facilitator for promoting economic activity in the private sector can place this industry on top of the priority areas for fighting against the formidable problem of the unemployment in Pakistan.
Despite tremendous growth attained by the construction and housing sector in the recent years, the industry continues to face problems and obstacles due to complete chaos in various concerned departments directly or indirectly related to housing and construction industry.
One of the major problems faced by the housing and construction industry is the lack of coordination among the government departments and implementation of the policy decisions in letter and spirit due to rampant corruption. The problems are further compounded by the presence of large number of agencies with conflicting interests and overlapping jurisdictions earmarked to these agencies. There are as many as 14 different agencies and departments over running housing and construction activities. The outdated and self-defeating system should be done away with and replaced with a simple one-window operation, demanded Jamshed Rizvi.
The infrastructure facilities such as road communication, electric, gas and water supplies and other utilities play the fundamental role in promoting any housing or commercial scheme. Whatever the growth and progress achieved by the housing and construction industry in Pakistan no scheme can be successful without the provision of utilities. The failure of Surjani Town a low cost-housing scheme designed by the government is the glaring example of miserable failure of the utility services in Pakistan. Thousands of low cost housing units were developed by various construction companies in the private sector at the Surjani township scheme but all the efforts made by the private sector were marred due to failure of the civic agencies who failed to provide utility services in that scheme. Consequently, thousands of un-occupied units are rotting and crumbling and turning into a great national loss.
In order to avoid recurrence of such a massive loss, the availability of utility services should be made mandatory upon the utility agencies to provide water, electricity and gas connections at least three months before the completion of the housing projects.
The incorrigible attitude of certain agencies whose seal of authentication is a pre-requisite for carrying out construction business such as acquisition of N.O.C., cancellation of plots, banning of construction sealing of complete projects and the like indeed are the stumbling blocks in the way of progress of this important industry.
Since the available land cannot be overestimated and limited infrastructure facilities due to overall financial constraints faced by the country, the permission to go for vertical housing development would seem to be the viable solution of the housing problem in Pakistan especially in urban areas. Jamshed Rizvi has demanded of the government that the existing ban on high-rises in Sindh should be removed and new high rise zones may be created along with that of commercial corridors as a cross subsidiary to low cost housing zones.
The national housing policy which envisages as the highest priority sector needs to be implemented in letter and spirit. The government should provide land with infrastructure at affordable prices for housing schemes especially for low-income groups. Giving incentives to private sector and mobilizing its resources in terms of financing, management skill, manpower and goodwill should encourage public-private-partnership.
A golden opportunity exists in the shape of suspended 'Apna Ghar scheme'. Whatever fate, through mismanagement or corruption was going to fall or not fall on this scheme under previous government has been avoided.
A sufficient amount of spadework has been done. If an efficient execution setup can be put in place and proper commercial model developed, this scheme can be a golden opportunity for the present government to contribute significantly to the social action programme by meeting the much needed housing programme and at the same time creating jobs for the unemployed.
Unfortunately, if the scheme was abandoned, it will cause government to default on over 40 contracts for about 10,000 houses worth Rs5 billion. In case of doing away with 'Apna Ghar Scheme', the government would have to face claims worth Rs700 million of the contractors to whom the job was granted by the previous government.
The issue can be resolved by asking the contractors to take over the projects and construct and market the projects themselves. If the government goes for this solution, its role will be restricted as the facilitator and lawmaker only. The contractors can be charged for the price of the land, which may be recovered in installments.
During the recent years, successive governments have displayed awareness of the issues pertaining to housing problems in Pakistan. Various steps were initiated in the form of policy decisions including plans and programmes for solving the urban development and housing problems of the ever-growing population in Pakistan. A national housing policy was charted which covers all relevant aspects of housing including provision of land financing, construction technology, building materials, low income housing research, institutional framework and implementation mechanism. In August 1987 the National Housing Authority was set up with the then Prime Minister as the Chairperson of its Board of Governors. The Authority was assigned the task to prepare short term and long term plans and programmes for development of housing for low-income groups in the country.
The private sector has traditionally been playing a prominent role in both the construction and housing sectors. However, a pressing need was felt to organize the private sector on a representative platform and make its role and position in the housing sector more effective and constructive.
Responding to this need a small group of reputed builders and developers got together and the Association of Builders and Developers (ABAD) was formed.
Munir Sultan, a prominent member of ABAD says that to have cohesive and integrated dispensation, formation of a full-fledged ministry exclusively for housing and construction sector is of paramount importance both at provincial and federal government level. This would require proper coordination only by able, competent and professionally sound personnel so that conceptual planning is evolved in view of growth pattern, people's tendency and future requirements. This would also encompass socio-economic and socio-political conditions based on professional, statistical and rational approach. When this concrete planning is achieved, it should be given the cover of legislation so that no deviation could be made from the Master Plan through adhocism or administrative jargon.
Since the construction industry plays a vital role in accelerating the economic activities in a large number of manufacturing sector besides providing job opportunities at a massive scale, it needs special attention of the policy makers. In view of the significant role, the construction industry plays for economic and social stability; immediate corrective steps are needed to bring the prevailing deadlock to an end. Providing affordable accommodation to the people is the responsibility of the government. Hence foolproof steps are needed to keep this sector free from so called political gurus who are known for their politics of plot and permits.