The much anticipated building boom that is expected to get underway once the June budget comes through may well go bust if the cement industry continues to play dirty. With rising steel prices already hurting the building, construction and housing sectors
, the unexplained hike in cement prices and the stubbornness shown by cement producers of keeping prices at such unrealistic may be the deadly blow that would kill any construction boom before it even gets started.
The price of raw materials and inputs of construction and housing are already high. Home as well as commercial builders complain that present level rates are not sustainable.
Some of the price hikes are caused by factors beyond the control of the government. Steel prices have gone up on the back of an international rise in iron and raw material inputs. Players say that these prices are expected to come down within a year or so.
For the Pakistan Steel Mill and other steel producers, these are good times. Production at the steel mills is now stated to be at record levels. Prices of steel products made by PSM have gone up several times over in the past year.
To ease the steel situation, the government announced some concessions reducing tariffs on the import of raw material for the production of steel in April. The jump in some categories of steel made by the Pakistan Steel Mills had threatened to put a number of steel based manufacturing units out of business.
About 40 automobile part makers had suspended production in March after the doubling of prices of certain grades of steel and iron products in the market. While the situation remains far from satisfactory, there are hopes that steel prices will settle in the coming few years.
There are now efforts to increase the production capacity of the Pakistan Steel Mills from the present 1.1 million tons to 3 million tons annually. However, these expansion plans have been in the offing for almost a decade now.
Very little seems to be happening on ground. In addition, steel making units as well as the ship breaking industry have also been given some incentives that will help in the long run.
In the case of cement, the rise in the prices in Pakistan is being attributed to the "cartelization" of the sector, thanks to the entry of some powerful players who seem to have kept the finance ministry to ransom.
Cement is an important input for the housing and construction industry and a rise in its cost has a widespread impact. In the budget announced in June 2003, the government had allowed a 25 per cent reduction in central excise duty (CED) on cement to help ease prices.
Instead of prices going down as a result of this concession, there was a rise in local cement prices. In the second half of 2003, cement prices increased by over 35 per cent as a bag of cement which was selling for Rs 160 before the budget was then sold for Rs 220.
Today, that bag costs over Rs 240. There are days when cement stockists say that their supplies have run out and they cannot sell any bags. Some cement retailers say that this is because cement producers are deliberately creating an artificial shortage. The government has failed to remain vigilant by ensuring that prices remain at reasonable levels and there is no scarcity of cement in the market.
To add to this is the news of the rise in the export price of cement. While exporting cement assures better profit margins to producers as well as more foreign exchange earning through non-traditional exports for the country, this situation can also have a negative effect.
An unchecked export drive, particularly by cement producers in the NWFP where it is more attractive to sell to the Afghan market, may cause a scarcity at home. This will push local cement prices even further up.
The All Pakistan Cement Manufacturers Association had earlier promised to lower prices if local production went up. However, despite capacity utilization exceeding 90 per cent at some units, the prices have not come down. The finance minister, who has acted promptly in bringing players in other sectors into line, has remained silent on cement.
The building products industry, in its stages of infancy, has to be supported. Uptil now, Pakistan has largely relied on the informal sector for building product requirements like blocks and other materials.
This culture needs to be changed. Companies that engage in building construction-bricks and cement blocks in a standardized fashion using modern technology need to be encouraged.
"Star" of the forthcoming budget: Housing and construction are expected to feature prominently in the coming budget. The decision by the government to give priority to the housing industry and promise incentives to jump-start this sector is a step in the right direction.
Housing and construction are both labour intensive industries that have the potential of easing the problem of unemployment in the country in the short term. This fits in well with the strategy devised by the State Bank which had said in its annual report that the biggest challenge before the country's economic managers was to create as many jobs as possible in the short run.
The SBP report had inter-linked the issue of job creation with that of poverty, which has risen in Pakistan from 20 per cent to 33 per cent of the population over the past decade. However, for the housing sector to take off, the government needs to address the issues that have been raised by various stakeholders.
In his meeting with representatives of the housing and construction industry in April, President Musharraf assured his audience of various incentives for their sector in the forthcoming budget.
These incentives need to be backed up with housing-friendly policies and measures. In this regard, the government should look at checking the practice of land grabbing that is so common in major cities of the country and introduce uniform building laws.
Another problem that has been pointed out is the long delays faced by builders in providing utility services to housing schemes and the numerous NOC's that need to be obtained before one can actually transfer ownership.
The demand for a one-window operation for these services is quite justified. Also, the government needs to reduce transfer fees charges as this will encourage the real estate business.
The real estate business also needs to be streamlined. For the housing sector to benefit from the growing demand for houses fuelled by low interest rates, the real estate sector should channelize that demand and play an important link between the home buyer and the construction industry.
In this, the government needs to give incentives to develop the real estate business and bring it on professional lines. The days of one room operations operating in a haphazard manner should be limited. Time has come for the corporate sector to enter the real estate brokerage business and run it on professional lines.
Yet another issue that needs to be looked at is that of housing finance. Financial institutions need to look at supporting large scale housing projects more aggressively as these will have a bigger impact on the economy than the individual financing that is more common.
While projects that are launched by builders are good, the need to launch housing cities is the next step for Pakistan's building sector. Incentives should be given to companies of national and international standing to conceptualize, plan and build housing colonies and new cities.
Needless to say, international tie-ups with some of the bigger names in this field would be desirable. These cities should be targeted at people whose daily routine does not entail coming into the city centre.
There is now demand in Pakistan for cities that are built from scratch. These have to be designed and built on professional lines so that the concept can flourish. These projects would ease pressure on metropolitan centres.
Along-with this, more would need to be done to provide access to these new housing colonies. Here, incentives need to be given to lay down rail tracks or bus routes or simply invest in roads and infrastructure that provides clear and quick access.
Also, a lot needs to be done to update and improve the system for keeping land records. In many cases, banks have been reluctant to lend money to customers in certain localities in different cities owing to the high rate of fraud and forgery that is witnessed owing to the indifference of the relevant authorities.
With the exception of Defence Housing Authority, financial institutions are reluctant to lend against property documents. This is a trend that needs to be changed if there is to be a widespread distribution of housing loans.
Two options that the government needs to seriously look at is that of satellite towns and low cost housing. To ease congestion in our major cities like Karachi and Lahore, the city master plan should envisage the construction of satellite towns where a cheaper and more attractive housing alternative can be offered.
This will ease the pressure on the cities and help check the congestion that one sees. In the same vein, the local governments and municipal bodies need to launch low cost housing schemes for All this, however, will come to naught if proper investment is not made in manpower resources.
Our manpower is simply not trained in modern construction techniques and this is an area in which the government needs to give incentives as well. Poly-technics and vocational training houses where manpower is trained in masonry and other construction requirements need to be set up on a priority basis.
In all, it will simply not be enough for the government to give incentives to the housing, building and construction industry and expect that a boom will take place. The proper conditions have to be created as well and these should be kept in mind in the forthcoming budget.
