RISING REAL ESTATE PRICES
The case of builders and consumers
Aug 31 - Sep 06, 1996
Since the announcement of the current budget two months ago, prospective buyers of residential property would rather keep their money in their pocket and wait. Those who have booked apartments in various parts of the city are now cursing the budget for most of them have since received notices from their builders informing them of the escalation in the prices of building materials and therefore inviting them to come and make payments in addition to the agreed price.
Arif, an average local, had diverted some of the money from his business to book an apartment in Gulshan-e-Iqbal immediately after his marriage and was satisfied with the progress of work being carried out at the site. Moreover, he was quick to decide on the booking of the apartment at the beginning because that was the only project in the city at that time which guaranteed 'No escalation in price'. So , he could not understand when he received a letter from the builder informing him of the changes in the price of the apartment due to enhancement in the prices of boiling materials.
Arif is not the only one affected at present nor is his builder the only company that has sent out such letters after the announcement of the budget.
During the visit of PAGE Real Estate to various parts of the city, it was found that most of the on-going projects have come to a halt for the same reason.
According to a developer whose projects have stopped in various parts of the city because most of his clients have failed to honour their commitments of paying their instalments, his own money, too is at stake on the projects and the Association of Builders and Developers has not been able to do anything concerning this. Instead, the Association and the government have been playing hide-and-seek over what he called petty issues.
According to some of the clients spoken to, the house building finance companies too are presently reluctant to come forward and finance new schemes for reasons best known to them, an allegation confirmed by a source from the International Housing Finance Limited. According to him, some projects being financed by the corporation have now come to a stand still. And as far as the government-owned House Building Finance Corporation (HBFC) is concerned, the corporation has been 'sick' for quite for some time now due to what analysts called bad loans.
For the sixth month running now, the prices of real estate, especially those of property have been gradually falling while those of constructed buildings remain the same in some areas and are falling in other areas for non-availability of buyers.
Though most of the building raw material is available locally, the central excise duty and sales tax imposed on the products have increased the prices of finished products tremendously.
In addition to these, the cost of transportation, power and labour have also increased beside the margins of the manufacturers who are said to be exploiting the situation to their advantage in the absence of any consumer protection society that can properly monitor such activities and take action on its own.
One interesting factor about construction material is the fact that prices of products such as cement, aluminium, sanitary fittings and cables always increase immediately after the budget every year without any justification whatsoever.
Percentage increase in the rates of Material and Labour and their effect on the cost of construction. (figures in %)
Items Weightage *1992 1993 1994 1995Cement 17.00 100 119 152 152Blocks 2.50 100 128 156 178Sand 3.00 100 107 114 129Crush 1.70 100 112 123 138Steel 24.00 100 112 123 177Formwork 2.00 100 125 150 167Chowkhat Wood 1.50 100 143 186 229White Cement 2.00 100 116 151 155Dana 2.50 100 128 156 188Glazed Tiles 3.00 100 130 160 180Paint 2.50 100 123 146 206Aluminium 4.00 100 114 127 164Glass 0.70 100 117 133 167Kitchen Cabinet 2.00 100 117 133 156Metal Work 1.00 100 121 143 190Electrical Wiring 3.60 100 111 121 155Plumbing & Sewerage 3.50 100 120 140 160Sanitary Ware 1.60 100 130 160 180Sanitary Fittings 0.90 100 121 142 161Labour 21.00 100 115 131 162(Weight x%) 100.00 100 117 137 170
Rates of 1992 are taken as base year. Source: ABAD