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Surge in housing backlog

May 19, 2014


AKBER Sheikh, a leading Lahore-based developer, builder, spinner and chairman of the Zaamin Group, can’t be easily persuaded into investing his money in a new project. But with the government of Prime Minister Nawaz Sharif ‘moving in the right direction’ he feels it is time to execute large projects — a technology park on an area of 39 acres and a shopping mall on over six acres.

The two projects, for which the land has been purchased on Raiwind Road and Thokar Niaz Beg in Lahore, are estimated to complete at a staggering cost ranging between Rs30-40bn and create thousands of temporary and permanent jobs, and are expected to ‘start by the middle of 2015’.

“With the government focusing on large infrastructure projects for economic revival and hard work being done to address energy shortages over the next few years, I think it’s good time to start large projects in Lahore,” noted Akber Sheikh, one of the county’s 100 largest taxpayers, in an interview last week.

“The national housing deficit has grown to 8m units and is increasing by 400,000 units a year. We must build at least 1m units a year to remove the housing backlog (in 25-30 years) as well”

Akber, a structural engineer trained at the NED University in Karachi and McGill University in Montreal, whose companies turn over around Rs6 billion annually, was chief design engineer for TLG & Associates, a major Canadian structural engineering consultant company, when he returned home in 1977 — about 10 years after he had left for the north American country to specialise in structural designing of tall buildings.

“I always wanted to live in Pakistan; I had never had a doubt about it though I didn’t have a family business here and knew I will have to start from a scratch,” he recalled. In Karachi, he joined Hasan Associates as its executive director (engineering), but left it in 1982 to set up his own firm that constructed numerous industrial buildings in the Kotri Industrial Estate in Hyderabad. “This country has been good to me.”

A few more years down the lane, he moved to Lahore as a new wave of industrialisation started in Punjab because of the incentives the provincial government of Nawaz Sharif gave to encourage rural industrialisation.

“The policies had attracted many of my clients to invest here. So I moved my business here and developed a strong corporate clientele,” he noted.

It was again Nawaz Sharif’s first government in Islamabad whose policies wooed him to diversify into the textile industry. Today he has 56,000 spindles.

It was in 2008 that he decided to venture into property development business, starting with the construction of 300 villas at the Lake City, the first private golf resort/residential project in the country. He has also constructed the Lahore Expo Centre and at the moment is building the country’s largest shopping mall, Emporium, for the Nishat Group and a 30-storey building, 1 Constitution Avenue, in Islamabad.

“Our construction industry has undergone a major change in the last five years; it has heavily mechanised and developed capacity to complete large projects in very short time. Lahore’s Metro Bus scheme is one example. A bit of facilitation by the government and we will become a lot more mechanised,” said the chairman of the Association of Builders and Developers (ABAD-north).

He estimated that construction spend at present is 8pc of the nation’s GDP, which makes it the largest sector of the economy after agriculture. “The construction sector, with 40-odd industries depending on it, has potential to achieve 15pc of GDP and earn export revenues of $5b a year if the government decides to hold its hands,” he contended.

“I believe the construction industry alone can push economic growth to above 7pc, the target the government plans to achieve in three years,” he argued, saying every Rs100 spent on construction yields Rs25 in taxes.

Construction, which is one of the largest and quickest employer, was given the status of an industry in the late 1990s. But the facilities that must accompany this status have as yet not been made available to the builders. For example, they can’t borrow money from banks to purchase equipment or machinery as the prudential regulations discourage lending against mobile assets.

Akber, an expert on WTO who represented Pakistan at many international forums, pointed out that the last 10 years had not been good for constructed real estate, forcing companies to change their business models and switch to land development that does not add value to the economy. This has resulted into excessive supply of developed plots but not much construction activity in housing or commercial buildings.

“Now many structural changes were taking place in the construction sector. Many corporate players are entering into constructed real estate business and many are watching the government’s response to the corporate initiative. If the government encourages them we will see a lot of activity in this sector in the years to come,” he said.

Akber says the government support and facilitation for the construction sector becomes even more crucial in view of the rising housing deficit in the country. “The national housing deficit has already grown to 8m units and increasing by 400,000 units a year. We are constructing 300,000-350,000 units a year against an annual requirement of about 700,000-750,000 units. We must build at least 1m units a year to remove the housing backlog (in 25-30 years) as well.”

He doesn’t want subsidies for the builders and developers. Just facilitation. “What we need is access to financing, elimination of competition with our regulators like the Lahore Development Authority (LDA), preference over foreign companies when it comes to competition for construction of mega projects by the government, and diplomatic support to export our services and labour.” He isn’t asking for much. Or is he?

Published in Dawn, Economic & Business, May 19th, 2014