Construction sector fears collapse
“A market which had countless buyers is now left with only very few because of the worsening economic conditions,” says Saad Hanif, Cement Sector Analyst at Insight Securities. photo: file
The construction sector, considered employer to millions of low-income segments and the labour class, is on the decline. Builders and other stakeholder say this is a result of government indifference.
Former Chairman of the Association of Builders and Developers (Abad) Muhammad Hanif Gohar said, “There was a boom in the construction industry during the previous government’s tenure as the industry engaged millions of labourers, but the current government did not take positive steps for the betterment of the industry.”
As a result, Gohar claims, work on ongoing projects has also stopped. “If the government takes steps to bring down the price of cement and steel, and provides facilities to the construction sector, then the wheels of the construction sector will start turning again.”
“The cement sector has increased the price of per page by Rs30, taking each bag to over Rs100,000. For the ordinary man, dreams of building a house have been shattered,” said Gohar.
Cement and Steel Sector Analyst at JS Global, Waqas Ghani Kukaswadia said, “The basic reason behind the boom in the construction sector was the tax amnesty scheme announced by the previous government. It allowed people to invest their wealth in the construction sector without disclosing the source.
He observed that “Cost overruns are another reason for the slump in the construction sector as cost feasibilities devised during Covid times are no longer valid due to a surge in the cost of construction material.”
“The price of key construction materials has increased since last year due to global price hikes. Domestic cement prices also increased more than 53% (around Rs360 per bag) in the last year, whereas steel prices are up 22% from levels in the same period last year owing to a rise in raw material prices and significant rupee devaluation,” he said.
“In the last six months, the dollar has jumped to Rs250 twice, and now it is under Rs220 trading at Rs225 in the open market. Despite the rupee’s appreciation, the price of per tonne of lead and cement has not been reduced,” said Kukaswadia, adding that the price of lead per tonne is also close to Rs220,000.
“The construction sector provides employment to millions. We appeal to the government to take steps to reduce the price of cement so the construction sector can keep running,” he urged.
Cement Sector Analyst Saqib Hussain was of the opinion that, “To offset the negative impact of Covid-19, Imran Khan’s government had announced various incentives for investors, including a construction package allowing people to invest in the sector without disclosing their source of income.”
He added that, “Banks were asked to set-aside 5% of their portfolios for the sector and were offering low markup loans for the construction of houses. These measures helped in boosting our economy and raising the employment rate.”
Pakistan Association of Large Steel Producers (PALSP) Secretary General Syed Wajid Bukhari said, “Between 2018 and 2020, leading steel companies declared huge losses and many smaller ones went out of business.”
“From 2020 to 2022, the situation improved a little, but again since April 2022, the steel sector is being hit by the worst ever crisis, and the recent floods have only added more fuel to the fire. The worst hit of all is the long segment of the steel sector engaged in the production of construction bars,” he noted.
Insight Securities Cement Sector Analyst, Saad Hanif said, “The real-estate market was a huge success during the last government, but since the new government has come into power the situation has become alarming.”
“A market which had countless buyers is now left with only very few because of the worsening economic conditions,” he lamented. “The price of all items related to construction purposes have increased, including cement, sand, crush, tiles, brick, concrete, paint as well as steel bars or rebars,” he said.
“The surge in the price of steel is not artificial, it is interlinked with various factors including rapid currency devaluation. In a short span of just one year, the price of scrap increased by 26%, electricity increased by 79%, gas increased by 187%, the PKR devalued by 37%, cargo charges increased 220% and the financial charges have gone up by 107%,” he lamented.
Published in The Express Tribune, October 22nd, 2022.
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