NEGLECTED CONSTRUCTION SECTOR
THERE IS A SHORTAGE OF OVER 10 MILLION HOUSING UNITS.
July 2 - 8, 2012
Housing and construction sector is considered one of the key drivers of economic uplift, as it is also said that no less than 60 industries are linked to this sector.
Globally, construction and engineering services industry is regarded as one of the largest fragmented industry accounting for 10-12 per cent of GDP in many countries. Benefiting from both public and private investments, the construction industry is a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled, and skilled work force. Construction and engineering services industry has played a key role in the economic uplift of the developed world. The remarkable infrastructure facilities on which the economic edifice of the developed countries stands, owes largely to the construction industry.
The rapidly developing economies like Korea, Turkey, Malaysia, and Indonesia realized the importance of this industry early in their economic development and they promoted construction industry in their countries. Through effective policy support and extension of credit lines to construction firms, these countries have been able to penetrate the growing construction markets of Central Asia, Middle East, and Russia.
Construction sector is one of the most neglected sectors in Pakistan, it is at low ebb, which can be judged from the fact that per capita consumption of cement in Pakistan is one of the lowest among the developing countries i.e. 72 kgs.
Pakistan is offering the most expensive housing finance at around 22 per cent. On the contrary, the United States and the Gulf states are offering a subsidy of 7.2-7.3 per cent on LIBOR to provide housing finance. Internationally, housing finance is available at 4.2-4.3 per cent. According to a World Bank's report, there is a shortage of over 10 million houses in Pakistan and this shortage is rising by 0.3 million annually.
State Bank of Pakistan (SBP)'s annual report on the state of the economy stated the construction industry posted the lowest growth of only 0.8 per cent in the fiscal year 2010-11, that was particularly distressing in the backdrop of the 59-year high growth posted in the fiscal year 2009-10 (28.4 percent). The sector contributes less than one per cent of gross domestic product (GDP) of the country, while its share is 70 per cent in the United States of America.
The construction sector is backbone of the country and there is a need for bridge financing to this sector in Pakistan in such a scenario, where energy crisis and political instability are prevailing throughout the country. The absence of funds in this important sector force investors to make 100 percent equity based financing and ultimately routinely delay the period for completing the project in three years to six or more years.
Comparing housing sector to the major export oriented textile sector, experts told PAGE that more than 100 allied industries depend upon the housing sector directly and indirectly, while only five to six industries to the textile sector and the housing sector is getting from worse to worst day-by-day in the country.
They said, "A country with healthy construction sector progresses rapidly. Existing Katchi Abadis in Pakistan are affecting living standards of people."
Builders and developers have impressed upon the government to provide financing for housing at subsidised markup rate like commercial banks provide under the State Bank of Pakistan's (SBP) export refinancing scheme. "The availability of financing at subsidised rate would narrow down the deficit of housing units and accelerate the much-needed economic growth too," they said.
It may be noted that commercial banks provide financing to exporters at a markup rate of 10 per cent against 12-per cent discount rate under the scheme of export refinance introduced by the SBP several years ago. The scheme enables the commercial banks to acquire financing for exporters from the SBP at a comparatively lower rate.
According to builders, the deficit of housing units has grown to 8.8 million at present. The deficit was widening by 300,000 units per annum. The subsidised financing would not only help narrow down the deficit, but would also accelerate the much-needed economic growth.
They said there are some 100 industries whose businesses depend upon construction activities in Pakistan, while India counts allied industries up to 200. "The acceleration in construction amid allied industries would automatically gear up the economic growth," they asserted.
They added the construction and allied industries provide employment opportunities to hundreds of people in the country, which is also a must to keep the economic and social development growing and sustainable.
The banks and some other institutions are providing housing finance, but the markup rate is much expensive and out of reach of the middle and lower income groups, they opined.
They said, "Cheap financing played a major role in stimulating housing sector and economic growth in developed countries." The financing provided in the housing sector in Pakistan is less than one per cent of GDP, while this is 20 per cent in China and 80 per cent in USA and Europe, they said.
They stressed upon the government to provide housing finance at a markup rate in a single-digit, saying that the unavailability of such a financing is resulting into increase in slump areas.
Devaluation of Pak rupee and soaring inflation are one of the major problems facing the housing and construction sector. Depreciation of the local currency and the cost escalation eroded away the capital itself and therefore the industry could not cope with the funding of projects.
Our federal and provincial governments need to look towards future needs and spread a network of roads, bridges, metro bus services and other facilities that would not only provide relief to masses but also create a new culture to lead the country in the comity of developed nations.