The prices of real estate have declined by 15-25 per cent recently

By Syed M. Aslam
Nov 29 - Dec 05, 1999

The unstable economic and political situation has taken a heavy toll on the real estate prices throughout the country, particularly the biggest metropolis Karachi. The prices of real estate have declined by 15-25 per cent depending on the location and quality of construction of a particular property or construction.

Talking to PAGE the secretary of Association of Builders and Developers (ABAD), Syed Ali Kausar Zaidi, said that like all other sectors of the economy the construction activities could not work in a vacuum. Underplaying the prevalent slump in the real estate market across the country in general and Karachi in particular, he said that it is common phenomenon primarily due to an uncertain economic and political situation in the country.

Many observers attribute the prevalent slump in the real estate market on the drive against the loan defaulters many of which include members in the construction industry. The accusation seem to stem from the fact that construction activities are usually heavily financed by the state-owned banks and financial activities such as the House Building Finance Corporation.

Sources who ask PAGE not to mention their names said that an already bad slump in the real estate market worsened with the change of the government last year and the following crackdown against the defaulters. It has resulted in the slowing down of construction activities, in many cases to grind to a halt, as only genuine builders have choose to remain in the business. This has also resulted in the stoppage of work on many projects where structural works have already been completed.

In addition, PAGE was told, the influx of investment in to new construction projects has also came to almost a standstill as few are interested to take risks. With the most of the construction activities coming to a near close a handful of genuine and scrupulous builders keep on plying their trade.

Kausar denied that the loan recovery drive had anything to do with the slump in the real estate saying that the Karachi Development Authority (KDA) is wrongfully charging the builders for the development works which in the first place are its responsibility. Instead, he attributed, it to two other major factors. Number one, the upgradation of the 1979 construction by-laws and a drastic increase in the cost of construction during last five years.

The Sindh Construction and Building Ordinance of 1979, he said, must be amended to meet the changing socio-economic needs of today. For instance, the implementation of the law which permits construction of ‘1 plus 4’ residential plazas restricts the growth of construction in Karachi which faces an acute shortage of available land.

The standard ‘1 plus 4’ criteria restricts the builders to construct housing projects which are just four floor high in a city where shortage of land leaves vertical growth an only choice of building expansion, he added. In addition, the drastic increase in the price of land over last two decades has made it impossible for a person of an average means to even think of buying a piece of land, not to mention to afford the high cost of construction.

Secondly, the cost of construction has almost doubled during last five years primarily due to increase in the prices of cement from Rs 90-100 a bag to upto Rs 220 at present. The prices of all other construction inputs and labour has increased in similar way during the same period, he added.

This further highlight the necessity to amend the twenty-year old construction by-laws to encourage the construction expansion which at present is only possible vertically, he stressed.

The official statistics show that the overall urban population at the national level in Pakistan has increased from 28.3 per cent in 1981 to 32.6 per cent in 1998. The quick urbanization has put a tremendous pressure on the local construction industry to meet an already huge backlog of 4 million housing units, the bulk of which is concentrated in Karachi.

The pressure will show no signs of ease as by the year 2003 it is estimated the fast urbanization would increase the population in urban areas to 50.8 million, 7.9 million more than the 42.9 million it accommodated by end last year.

The failure of the real estate slump to draw buyers is an indication that the prices have already gone beyond the purchasing power of the most Pakistanis, particularly those in the middle and low income group. Measures to stabilise the constantly increasing prices of such basic construction materials as cement, gravel, iron bars, lumber and other inputs should be devised to stabilise the construction prices for the benefit of people. The need to amend the construction by-laws to bring them in harmony with the socio-economic realities of today should also be addressed on a top priority basis.