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HOUSING AND CONSTRUCTION
On top priority
By AMANULLAH BASHAR
July 21 - 27, 2003
The present government has accorded a high priority to the Housing and Construction industry in the budget 2003-04 which, is aimed at acceleration of the economic activity in the country.
It is said that over 80 different sub-sectors of the industry are allied to the construction sector. The fall out of an active construction sector over the allied industries means generating economic activity in a number of industries which would ultimately help the economy to overcome the gigantic problem of unemployment in the country.
These are the reasons seems to be the basis for identifying priority areas like housing and construction, agriculture, and manufacturing sectors to lead the country on the path of economic prosperity.
Besides budgetary incentives such as a cut of 25 per cent in the central excise duty on cement, the overall financing limit of the House Building Finance Corporation (HBFC) has been raised from Rs2 million to Rs5 million and for commercial banks the limit for house financing is allowed up to Rs7.5 million. This is of course unprecedented financing limit which was never in access for house construction in Pakistan.
Encouraged with the government policy, the Defence Housing Authority (DHA) has also launched a waterfront mega project which will be developed over 14 kilometer of prime land alongside the Karachi beach. Described as unparallel in the construction history of Pakistan, the project is expected to generate about 120,000 new job opportunities.
The first phase of this mega project includes construction of 14-storey residential blocks spread over 17.5 acres of land. The price of the apartments will range from Rs5.95 million for a three-bed room apartment to Rs12 million for a luxury penthouse. The down payment amount for booking the apartments was fixed at Rs21,000 while according to informed sources; the remaining amount will be financed by the Askari Bank as a loan for house financing.
It is reported that the entire project has been overbooked within a week of the announcement; however, the allotment of the apartments will be decided through balloting or a draw to be held later on. The project will be self-sufficient in electricity and water supply as the sponsors have plans to build a power plant and desalination unit at and infrastructure facilities for the project.
Association of Builders and Developers (ABAD) has, however, expressed its serious concerned over the DHA's waterfront project.
Hafeez Urrehman Butt, Chairman ABAD while commenting over the project said that in effect, DHA was encroachment of the rights of the private sector by entering into the business of housing and construction. Primarily, DHA's had a well defined role and that was to develop the land of its domain but now it has started building housing projects which is out of its domain.
He said that on one hand the government has announced its decision to assign a greater role to the housing and construction industry and has taken various positive steps to encouraging this important sector to play an active role in the growth of the national economy. It has announced various tax concessions especially to bring down the cement prices and other construction material in the recently announced federal budget. But merely announcement of the policies would not produce the desired results unless the effectively implementation of these policies was ensured. Contrary to the policy of the government to identify the housing and construction industry as the stimulant for economic activity, the indifferent attitude of the provincial government in removing the irritants of the sector was proving counter productive towards achieving the targets.
Hafeez Urrehman Butt elaborating his point of view said that the provincial government through an ordinance had cancelled the plots of land allotted during 1985-1990 and the fate of these plots was hanging in balance so far. These plots allotted to various people were purchased by the builders but the construction progress was hanged up due to cancellation orders. Since the builders had not source of obtaining land for construction of residential or commercial projects they purchased the land allotted under Chief Minister's quota which was later not cancelled by the provincial government. Despite the fact that the builders were running from pillar to post, no decision regarding the fate of that has been taken so far. Another important factor, pointed out by the ABAD Chairman was the indecisiveness of the provincial government regarding regularization or commercialization of different roads of the city. How development activity will take place when the provincial government is not responding in accordance to the federal government policies to activate the housing and construction industry as an active player for generating economic activity in the country? Hafeez raised the question.
The motive behind budgetary measures of reducing 25 per cent central excise duty on cement was to pass on the benefit to the consumers and to support the housing and construction industry. Contrary to that objective, the cement prices instead of coming down have gone up by Rs10 per bag, while the pre-budget prices of iron and steel bars, another important component of the construction, have also increased from Rs26,000 per ton to Rs32,000 per ton after the budget. These factors clearly show the lack of follow up for effective implementation of the good economic policies.
The cement prices have gone up following the formation of a cartel of the cement producers which is the main reason for artificially increase in the cement prices.
Meanwhile, the Monopoly Control Authority (MCA) has come out with a bold decision to investigate into the reasons for increase in the cement prices and why the benefit of the reduction in excise duty was not passed on to the consumers. The MCA has also issued show cause notices to different cement manufacturing units for involving unfair trade practices for making undue gains.
ABAD has also reacted over the formation of cartel of the cement producers and said that instead of cutting down the prices of cement after withdrawal of excise duty by the government, the prices of cement remained the same and putting extra burden on the construction industry.
Regarding MCA's decision to investigate into the formation of a cartel of the cement manufacturers, ABAD Chairman expressed the hope that investigation will be meaningful and lead to some concrete solution instead of mere warnings of issuing show cause notices to the cement manufacturers involved in unfair trade practices.
Hafeez Urrehman observed that several inquiry commissions and committees were formed in the past as well to monitor unfair trade practices and to check monopoly over industrial products by certain groups but no concrete action was taken by the regulatory authorities for considerations best known to them. Such half hearted efforts to eradicate unfair practices do nothing but shake the confidence of the investors. In fact, it is the prime responsibility of the MCA all over the world, especially in the developing economies, that such regulatory bodies provide a framework to protect the interest of the consumers. If the policy makers desire to see positive results of the good economic decisions and to attract investment in different sectors, such regulatory authorities would have to play a meaningful role to justify their existence as well as to win the heart of the end users at the larger scale.
ABAD Chairman, however, appreciated the version of the State Cement Corporation that government controlled cement units were not part of any cartel. The role of construction industry in the process of development was well recognized for generating tremendous employment opportunities and the contribution of this industry for revival of the economy.
Highlighting the significance of the housing and construction industry as the engine of growth in the context of Pakistan economy, ABAD Chairman said that there was a tremendous potential for generating economic activity in this sector because of growing demand for new housing units every year. This offers great opportunities not only to the construction but the financial sector as well to play a much greater role in this sector.
The potential for business opportunities in this sector are reflected in the fact that country needs around 600,000 new housing units per annum while only 50 per cent of the total demand could hardly be developed in the given circumstances. Consequently, a shortfall of around 300,000 housing units is piled up over the years bringing a huge gap between demand and the supply situation. According to an estimate at least 6 million new housing units are required to provide a housing unit to the shelterless people in Pakistan. This gap cannot be bridged overnight, it will take at least 20 years to overcome the problem of the industry and allowed to built new units at an average of 600,000 per annum.
The situation is not as simple as it looks. In fact, for construction of new housing units, there is a dire need to overcome the acute shortage of potable water and electricity which are essentially required for human living in today's life style.
Unfortunately, these essential civic needs are not available adequately even to the existing housing localities. Shortage of drinking water and electricity has become a chronic issue of the urban areas especially in the largest city of Pakistan.
Prior to go ahead with the implementation of the new housing and construction policies to achieve the economic goals according to economic plans of the government, there is a need to chalk out cohesive plans for basic infrastructures especially sustainable supply of drinking water and electricity. It is amazing that despite an annual growth of 6 per cent in electricity demand, there was a cap on installing new power units for Karachi Electric Supply Corporation. If for any good reasons, the KESC was not suppose to set up new power generating units, the private sector should be entrusted to establish power units in this city. In the peak summer season, the demand for electricity is estimated around 2000 Megawatt while the KESC hardly produced even half of the total demand of the city. Consequently, KESC has no option but to go for load shedding for several hours rotating in different areas of the city. Will this situation encourage the investors in housing or for that matter any other industrial sector. The situation calls for serious efforts to overcome the problem of electricity shortage at the earliest so that all spheres of the economy could face the fast approaching challenges of the globalization in January 2005. Shortage of drinking water is equally important issue and needed serious attention of the people at the helm of affairs. There is no more time to ponder upon the issue, now is the time to take practical steps resolve the issue on permanent basis. Besides augmentation of water supply from Indus, desalination of sea water is another option which has been successfully practiced in other countries especially in the Middle East. This sector also offers great potential for investment and the available market for drinking water especially in Karachi can respond in an attractive way to the potential investors in this area.
Since the date when Pakistan came into being in 1947, the population of Karachi has multiplied from merely 400,000 to around 14 million if the non-registered population occupying most of the Katchi Abadis, the influx from Afghanistan is taken into account. Today, a large number of people living in Katchi Abadis in the city are the real cause for utility problems. Since the government did not come out with any housing scheme after the localities developed by Ayub Khan Regime, and residential plots offered by Bhutto regime, the non-availability of land at an affordable price is said to the main cause for rapid growth of slums in and around Karachi.
According to a report on housing in Karachi, government plans developed for the urban poor do not benefit them. This is because these plans, and the procedures adopted for their implementation were incompatible with the sociology and economics of lower income groups. Over the years of ups and downs, the political institutions have developed a trend of serving the party interest rather then the interest of the people in general. The majorities of the technocrats who give physical shape to political thinking are also hail from the middle classes generally have a poor understanding of the urban poor and look upon them with suspicion and hostility. The requirement of social research to facilitate the implementation of progressive policies that the various plans introduce, has not taken place. Even the institutions for undertaking it do not exist. In the absence of such research and direct contact with the target group, a wide gulf exists between government policy concepts and the reality of the urban poor.
The government institutions do not have the capacity to deal with the massive programs that are proposed. Amazingly, instead of devoting time and energy to resolve the housing problems of the masses, the institutions assigned the task used most of the resources for their own benefits and some prime land of the city was allotted by them under the name of welfare housing schemes of the staff employed with that institution. The defunct Karachi Development Authority did not work for evolving a long term plan for as its master plan did not see beyond 2000.
There is a noticeable change in the real estates sector obviously because of the policies of the present government to lend a supporting hand to the housing and construction sector. There is a marked increase in the prices of real estate in different parts of the city. According to active players in the real estate business, there is an average increase of 30 per cent in real estate value is reported from different areas. Value of property had virtually came to a standstill some two years back in the areas like Defence Housing Society, Clifton, PECHS, Gulshan-e-Iqbal, Gulistan-e-Jahur and North Nazimabad. The market has taken a turnaround and average prices of property have increased at least by 30 per cent in these areas. According to experts, besides the good decisions taken by the government in the housing policy and the incentives announced in the budget, one of the major causes for revival of the housing and construction sector is identified as stability of rupee against dollar, and low return on various bank schemes. Since the investors lost their interest in the banking schemes due to low returns, the real estate sector offers much attractive returns of their investment as compared to other areas of investment.
The enhanced activity in the housing and construction sector has its own impact. On one hand, it has accelerated various sub-sectors such as cement industry which at present running almost 80 per cent of the capacity which is unprecedented in the history of this country. According to an estimate, due to growing demand for cement both in the country as well as in Afghanistan, the cement industry may soon start working on full capacity that 18 million per annum while more new units would be required if the demand for cement was increased. Other sectors which have positive impact of the policy include the steel industry. The demand for steel has also taken a quantum jump and the Pakistan Steel is actively considering increasing its capacity from 1.1 million tons to 1.5 million tons with the technical assistance of Russia.
Although the ship-breaking industry at Gaddani beach has slowed down due to reported heavy taxation on the imported vessels for scrapping, yet people engaged in this sector are attaching hope that Gaddani ship breaking industry which once used to be the second largest ship break yard all over the world will be regain its status in near future with the growing demand for steel in the country. Industry sources are of the opinion that other sectors allied to the construction industry such as electric cable, PVC pipe, paint, glass, wooden doors and other wooden fixtures, ceramics and tiles and a range of manufacturing units have also started showing positive signs of growth. On the other hand enhanced activity in the housing and construction sector have resulted a gradual jump in prices. The trend for increase in the value property has an adverse side of the picture as it is getting out of the reach of the low income group. Although the increasing role of the private sector has helped accelerating economic activity yet it is resulting a price inflation in this sector which may deprive the low income group to fulfill the dream of owning a house. In order to address this issue more effectively, the government will have to come forward with comprehensive housing scheme to provide shelter to the poor at affordable price.
Syed Safwanullah, Federal Minister for Housing and Construction has, however, realized the situation and has asked the National Construction Ltd (NCL) to prepare schemes of low cost housing for the low income groups all over the country. Currently, NCL is engaged with 17 public sector schemes including construction of Lok Virsa Museum, Shrines of Lal Shehbaz Qalandar at Sehwan Shareef in Sindh and Hazrat Baba Fareed at Pak Pattan Shareef in Punjab, flyovers of Liaquatabad/Karimabad, construction of D-type quarters in sector 11-G North Karachi and residential colony for the employees of Accounts Department of Azad Kashmir Government. The role of such public sector organizations having a good record of their past are required to be assigned greater job in the construction and housing sector at a massive scale to bridge the gap between demand and supply of the new housing sectors.
In fact, the dream of the people having no shelter over their heads is to own a small house of their own. Their dream is not for luxury apartments because the houses are made to live in, and not to look on.