NationalVOLUME 16 ISSUE # 01

Impediments to construction sector’s revival

The real estate and construction sector in Pakistan, which was once considered a lucrative business, is passing through its hardest time despite the fact that the government has extended unprecedented concessions to investors, businesspeople and individuals, who want to build residential and commercial units.

Recently, the government reduced markup for small housing units up to 5pc, which once touched 16-17pc, yet construction activities remain subdued. Prime Minister Imran Khan, whose election manifesto promised 5 million houses, is still hopeful of reviving construction activities in the country. Since April, despite the looming threat of the coronavirus, the government has taken a number of steps for the revival of the construction sector.

The Prime Minister, presiding over a meeting of the National Coordination Committee on Housing, Construction and Development recently, directed the provincial chief secretaries to submit a roadmap for launching a one-window facility and online approval of permits, fee payments and parallel working of all departments related to the housing sector.

In June, the federal cabinet decided to form a high-level committee, comprising representatives of the federal and provincial governments, to boost the construction industry and remove hurdles to its way. It will make decisions on a daily basis. The committee was formed under the Naya Pakistan Housing Authority to find a fast track solution to problems coming in the way of the construction industry.

However, the government strategy may not generate desired results in the near future since the provinces can impose lockdown in any area. The government is also planning construction of high-rise buildings in the vicinity of airports in major cities, like Karachi, Lahore, Islamabad, Peshawar and Multan, however, the provincial governments reportedly have not been taken on board so far.

In April, the government introduced an amnesty scheme, a second by the incumbent government in less than a year, only allowing builders and developers of housing societies and projects to avail economic incentives of direct and indirect taxes. The duration of the completion of the project is 2.5 years for availing the incentives.

Before the issuance of the ordinance, the scheme was approved by the federal cabinet headed by Prime Minister Imran Khan. The ordinance is titled as the Tax Laws (Amendment) Ordinance 2020. The government is yet to release the ordinance and only issued its details. Indirect beneficiaries of the package are related industries of cement, iron and steel, woodworks, goods transport, etc. The capital gains tax is exempted on the sales of constructed residential property, with a maximum land area of 500 sq yard and 4,000 square feet, in case of a flat.

No inquiry will be required into the source of an unexplained income of an individual builder or developer, who invested in an eligible project, any amount invested by a shareholder or partner of a builder or developer as capital or land transfer, on or before December 31, 2020. Following the approval of the ordinance, it was expected to see a full boom in construction activities. However, despite a lapse of over three months, there is little progress so far.

Around 60 per cent of construction projects are in Karachi. The cost of each project is not less than Rs3 billion while more than 500,000 people are directly involved in the construction sector. According to experts in the real estate sector, the “fear” factor is behind the slow progress of efforts for the revival of the construction industry. Ziaullah Shah, former Member Punjab Assembly and incumbent chairman Jammu and Kashmir Cooperative Housing Society, said the government’s concessions had confused the investors instead of encouraging them. He said amnesty had been given to construction activities, however, the rules for acquiring land were the same. “If the government is not lenient to builders as to how they acquired land it will be difficult to revive construction. We need amnesty on land acquisition and construction. Moreover, since the policies of the Pakistan Tehreek-i-Insaf (PTI) government are not stable, investors are not sure if the amnesty on construction would continue or lapse after some time,” he observed.

Mazhar Hussain, secretary general of the Ministry of Commerce Employees Cooperative Housing Society, said the National Accountability Bureau (NAB) was the biggest threat to the construction industry. He accused the NAB of hindering construction and development activities in housing societies on one pretext or the other. The district administration also creates hurdles to construction activities, he said, adding that besides increasing tax rates the administration, especially the cooperative societies registrar, entertains frivolous applications and then starts issuing notices to housing societies and in some instances, they suspend the management committees of housing societies.

The Federal Board of Revenue (FBR) has also introduced certain conditions for buying and selling properties and investors are reluctant to take risk in a climate of uncertainty. Experts say that besides public service departments, red-tape and bureaucratic hurdles, other institutions, such as the judiciary, is also responsible for slow pace of construction and development activities.

According to experts, hundreds of cases related to land acquisition have been pending before courts for years. Because of litigation, the development of residential units has come to a halt in almost all major cities of the country. In their opinion, the executive authorities need to take the judiciary, NAB, district and provincial governments and FBR on board if they want the construction sector to take off.