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.

Prices

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	1995 
Cement 			17.00 		100 	119 	152 	152 
Blocks 			2.50 		100 	128 	156 	178 
Sand 			3.00 		100 	107 	114 	129 
Crush 			1.70 		100 	112 	123 	138 
Steel 			24.00 		100 	112 	123 	177 
Formwork 		2.00 		100 	125 	150 	167 
Chowkhat Wood 		1.50 		100 	143 	186 	229 
White Cement 		2.00 		100 	116 	151 	155 
Dana 			2.50 		100 	128 	156 	188 
Glazed Tiles 		3.00 		100 	130 	160 	180 
Paint 			2.50 		100 	123 	146 	206 
Aluminium 		4.00 		100 	114 	127 	164 
Glass 			0.70 		100 	117 	133 	167 
Kitchen Cabinet 	2.00 		100 	117 	133 	156 
Metal Work 		1.00 		100 	121 	143 	190 
Electrical Wiring 	3.60 		100 	111 	121 	155 
Plumbing & Sewerage 	3.50 		100 	120 	140 	160 
Sanitary Ware 		1.60 		100 	130 	160 	180 
Sanitary Fittings 	0.90 		100 	121 	142 	161 
Labour 			21.00 		100 	115 	131 	162 
(Weight x%) 		100.00 		100 	117 	137 	170 

Rates of 1992 are taken as base year. Source: ABAD