Poor law and order situation coupled with devastation of floods may hamper construction activities causing to slow overall growth, industry sources said. But experts are of the view the growth in foreign investment in construction will continue despite recent circumstances of country due to home remittances.
Government had set target of 3.8 percent growth in construction in current financial year 2010-11 against 2 percent for last financial year 2009-10. However, start of reconstruction activities in flood-hit areas would result in increase of demand of other industrial products like steel and cement leading to hike in prices.
"Housing construction activity is picking up in major cities though at a slow pace," says Association of Builders and Developers (ABAD) Chairman Engr Farooq-uz-Zaman Khan while talking to Business Recorder. Apparently, larger inflows of home remittances and rising demand from the middle income groups are fuelling this trend.
Market sources said that contractors had stopped construction work on development projects being executed under Public Sector Development Programme (PSDP) 2010-11 after announcement of government to divert funds of development projects to flood-torn areas. "Government is only releasing 4-5 percent per fund per month just to meet expenditures of salaries," Planning Commission sources said adding that slow release of funds was due to recent country situation, which was under devastation of floods.
Zaman Khan said that after diverting funds to rebuild infrastructure of bridges, only four industrial sectors including steel and cement would benefit. "Housing construction causes activity in other 40 industrial sectors," he said adding that rebuilding of houses damaged by floods would not cause any boom in construction industry. He said that consumers were losing purchasing power due to poor economic situation.
When asked about rising trend in foreign direct investment regarding construction, he said that there was no major investment by any construction company during recent months. "People working abroad have sent remittances which their families spent on buying flats and homes," he said adding, "I see no healthy sign of growth in construction in future due to current situation."
Despite poor law and order situation, the country is witnessing hike in foreign direct investment in construction. Many foreign companies are actively participating in construction business, which may contribute valuable share in overall economic growth by enhanced construction activities.
Emaar Pakistan, the country subsidiary of global property developer Emaar Properties PJSC is engaged in construction activities and signed Rs 1.5 billion contract with Paragon Constructors for the construction of mega structures in Crescent bay Karachi which will create opportunities of employment generation.
The Crescent Bay Development Project has been planned to enhance the Karachi skyline by providing a unique and quality residential, commercial and retail community in an exclusive area of the city. Middle East giant has already demonstrated this through an in-time delivery of fully prepared homes to customers in the Canyon Views in Islamabad. According to figures released by State Bank of Pakistan (SBP), Foreign Private Direct Investment in construction rose by 14.5 percent in July financial year 2010-11 in comparison to corresponding period of last financial year 2009-10.
Foreign direct investment stood at 8.8 million dollars in period under review against 7.7 million dollars in corresponding period last financial year. Foreign direct investment in construction during last financial year 2009-10 also registered healthy sign, which stood at $77.7 million dollars. Experts are of the view the growth in foreign investment will continue despite poor law and order situation and devastation of floods due to home remittances.
Builders say more of genuine buyers are making deals for the real estate in major cities but mainly in middle-income areas as they have realised that investing in the real estate is less risky. They say that people now buy land not for investment but for building houses or they acquire flats for their own use.
The SBP estimates housing backlog of eight million units in which 300,000 more units may well be added every year. Builders say this backlog can be cleared and housing sector may grow fast enough to give the economy a real boost if the government and the private sector join hands in addressing the issues facing the industry.
All Pakistan Contractors Association (APCA) has also expressed serious concern that a number of projects in the country were running at slow pace or closed due to non availability of funds which would hamper construction activities. APCA urged the federal and all the four provincial governments not to curtail the development funds on any ground and should continue new projects so that skilled and unskilled construction workforce is employed which is returning from Middle East and other countries due to recession.