Terming construction and housing sector as an integral part of the growth objectives of the Punjab government, the Punjab Growth Strategy (PGS) 2023, promises an increase of 3.5 million housing stock by the year 2023 in the province. The increase is the part of the federal government initiative of increasing housing stock by 6 million nationally by the year 2023, as the construction and housing sector generate significant multipliers. For every US $1 million increase in construction output, US $2.9 million worth of output is created elsewhere in the economy.
The construction sector attracts significant FDI, as the country has experienced under the CPEC. The experience in Punjab and Pakistan is not any different. There are over 50 industries indirectly associated with the real estate construction sector, so the overall economic impact is much higher, the PGS document released recently by the provincial government added.
It said that a study by Karandaz estimates that the incremental contribution to economic growth as well as employment of housing construction is significant. For instance, if 100,000 houses measuring 5 marlas (1,125 square foot) were constructed in Lahore, it would contribute an additional 1.2 percent to the GDP and generate employment for 200,000 people. For 10-marla (2,250 square foot) houses, the GDP contribution would be 1.9 percent, with employment generation for nearly 400,000 people.
Therefore, the Growth Strategy puts a significant emphasis on the construction and housing sector. "The performance of the housing and construction sector depends largely on the overall growth of the economy, regulatory environment, suitably located and priced land, availability and pricing of inputs and availability of financing/mortgage," it added.
However, the report observed that Punjab has not performed to its full potential due to gaps in all of these factors. The growth of the economy in the past has been variable, thus resulting in income variability hampering demand for housing and construction.
"The export of manpower also saw a dip at the national level, suggesting declining levels of worker remittances, also impacting the demand for housing as suggested above. The difficulty and cost in obtaining construction permits and NOCs from the relevant authorities and public sector offices also delays the construction process and adds to the cost," it observed.
According to the report, the lack of land use policy, unclear titles of land, difficulty in transferring and lack of policy to control land price speculation has also slowed the growth of housing and construction. The land price, due to speculation, has increased significantly and acts as a natural constraint on the construction and the housing market. Land is bought and resold many times before any construction begins, which persistently pushes the prices upward.
"In the absence of mortgage financing, a lot of investment in the real estate sector is investor-driven with the incidences of genuine property buyers low and limited to middle-to-high income groups," it observed. It stated, "Financing to builders and mortgage financing for housing is fairly limited in Punjab and Pakistan. Builders, developers and house owners usually fund projects out of their own equity, investor advances and customer instalments.
Bank lending is relationship based and often limited to those builders who have other formal and established businesses, with an asset base that can be used as collateral. Owing to a range of limitations - from land administration and titling issues leading to insecure collateral, to the lack of capacity of SME builders - commercial banks are wary of lending to new or small builders with no history with the financial institution.
"The total construction finance in Pakistan is only 3.8 percent of the total credit forwarded to private sector businesses. The size of mortgage finance is negligible. On top of that, the banks that do offer mortgage products have an extremely small repayment period, usually within 5 years. This makes the mortgage expensive, as instalments come out to be too high.
Additionally, the regulatory environment is not favourable. Whereas part of Punjab has digitized land records, there are a number of legal and administrative issues relating to land that add to the cost and delivery. Poor master planning of cities, governance issues at the provincial and local government levels, involvement of multiple institutions in administrative procedures, problematic zoning restrictions, restrictive building codes and unreliable public utility create issues.
To address the multiple issues faced by the construction and housing sector, the government will develop and enforce the land use policy, and by using spatial mapping identify the most suitable land for housing and other related developments, states the report. The government will expand the land registration process to ensure all titles are clear and are in the name of real owners. The government, through the Board of Revenue, will also explore options to discourage land speculation for capital gains in the province.
Comments
Comments are closed.