Housing projects get delayed as inflation sparks

KARACHI: Advertisements of upcoming housing projects frequently flash on media but few have questioned their feasibility.

Owing to a economic downturn, record high inflation and low home financing in the past year, the construction industry has suffered badly. This has led to a delay in completion of housing projects and the backlog has become a source of worry for builders. “The demand and supply gap in the construction sector is massive and the backlog of homes is increasing phenomenally,” Engineer Farooquz Zaman Khan, Chairman Association of Builders and Developers Pakistan (Abad), told The Express Tribune in an interview.

Khan said that the country has annual demand of some 1.5 million homes, but the builders are able to construct only 0.25 to 0.3 million homes annually. Though the State Bank of Pakistan in its second quarterly report for fiscal year 2010 (FY10) said that the construction sector has gained momentum in FY10 with a ‘strong rebound’, Khan says no extraordinary change has been seen so far. “Yes, the performance of the construction sector is better when compared to the last fiscal year, but there is no major growth,” he says.

“But yes, investors are now seeing more opportunities in the coming months as the economy stabilises.” Had the economy been more stable, the construction sector would have registered a growth four times of what is now, he believes. But despite all this, the builders’ confidence has improved as they see the gross domestic product rising from 2 per cent last year to 3.5 per cent this fiscal year, added Khan. The construction industry is directly linked with over 40 allied industries such as paint, marble, tile, sanitary, cement, steel and others.

This industry also provides a large number of jobs to unskilled labour. For instance, construction of 0.1 million homes provides employment to at least 1.2 million labourers. “Until the government shifts its focus to this parent industry, the situation may persist...or even get worse,” warns Khan. Most of these housing projects follow the philosophy of ‘you keep paying, we keep building’. As a builder receives instalments from the investor or the buyer, he injects the money into the project according to the contract signed between the two parties.

This is referred to as incremental investment, explains Khan. But not many realise that instead of getting their ‘dream house’, people end up investing in the house of nightmares as projects are delayed with increasing rate of inflation. As a result, not many of these projects will be handed over to customers in the stipulated time.