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ABAD demands of govt to extend amnesty scheme


Recorder Report
23 May 2021

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KARACHI: Association of Builders and Developers of Pakistan (ABAD) has demanded of the government to extend the amnesty scheme given to the real estate and construction industry for at least one year.

According to details, the industry is facing long delays in approval of building plans in Sindh and a large number of builders and developers remained unable to register their projects in the amnesty scheme due to Covid-19 situation hence the scheme needs to be extended for at least one year.


On the other hand, the price hike in cement, iron bars, paints, tiles, etc. has created new records hence in order to avoid interruption in the momentum of the economic growth, the government should extend the special package for real estate and construction industry otherwise the results achieved through this package would go in vain, ABAD said.

Under the extended package, source of income will not be asked for investment in real estate and construction up to June 30, 2021, fixed tax regime for builders and developers up to December 31, 2021, and the period for projects up to June 30, 2022.


Copyright Business Recorder, 2021.


 

ghazi52

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The Government Launches a Package for the Construction Industry

To counter the dwindling economy, the government announced a Rs 100 billion relief package for the construction industry in April 2020. In many countries, the construction sector is considered the backbone of their economies and this is also true for Pakistan.

According to Hadi Akberali, COO Strategy, Amreli Steels (see his interview), “the construction industry is a major employer and comes with a lot of allied industries. It is a tried and tested way the world over for construction to kick-start an economy.” He cites Brazil, China and India as countries that improved their economies by means of increased construction activity.

Although formally, on average, the construction sector has contributed between 2.3% and 2.85% in the last five fiscal years to Pakistan’s GDP (it was valued at Rs 316 billion in the Pakistan Economic Survey 2019-20), most economists estimate its value to stand between 10 and 12% of the total GDP. This is because it provides stimulus to over 42 ancillary sectors including aluminium, brick, cables, cement, fixtures, glass, kitchen and bathroom fittings, marble, paint, steel, tiles, transportation, warehousing and wood. Therefore, it has a far-reaching impact on the overall economy as it employs eight percent of the total labour force.



What’s in a Package?

The package’s objectives are two-fold. The first is to bridge the affordable housing gap through the Naya Pakistan Housing Program (NPHP) which was initiated in April 2019 with the goal of building five million houses in five years (see A Question of Affordability) and second to jumpstart the economy by creating employment. To ensure these goals are met, the government set up the National Committee on Housing Construction and Development (NCHCD) in July. The Committee’s objectives include monitoring the construction sector and ensuring that any hurdles that arise are overcome to ensure that construction activities continue to increase rapidly.

Broadly speaking, the construction package includes tax incentives, waivers and subsidies for builders, developers and property owners (see Major Incentives in the Package below). To take advantage of the incentives, builders and developers have to register their projects on the Federal Board of Revenue’s (FBR) dedicated portal, Iris, by December 31, 2020 and complete ‘grey structures’ (basic structures without interior finishings) by September 30, 2022. In addition, a Construction Industry Development Board (CIDB) will be set up to “promote, encourage, facilitate the private construction industry and encourage investment.” (A Real Estate Regularity Authority [RERA] will be formed to regulate the sector with regard to property transactions among other functions.)

Incentivising Growth

According to the industry stakeholders Aurora spoke to, one of the most effective incentives is the one that does not require people to declare their sources of income before investing in construction related projects. “This is a key factor that will attract investment; if a buyer is interested in buying a property, all he has to do is put his money in a bank and make the payment,” explains Shafi Jakvani, CEO, Citi Associates.

This is a view that Mohsin Sheikhani, Chairman, Association of Builders and Developers Pakistan (ABAD) and Hamza Bhatti, General Manager, Pakland Builders, agree on as does Mohammed Adil Sami, Head of Marketing, Meezan Bank.

“The ‘no questions asked’ policy will encourage builders to invest their undocumented wealth in property and construction. This initiative, apart from providing legal cover for such individuals, will encourage people to invest in property. It will also encourage the expat community, who will be spared the cumbersome paperwork required to buy or build a home,” says Sami. He adds that the tax exemptions will lift investments in property and impact the construction sector and its allied industries in a positive manner.

In Jakvani’s opinion, the fact that there will be a 90% tax reduction for builders who invest in NPHP will also give a boost to the economy. “Even in the first stage, if 500,000 units are built, they will require labour, building materials so all related sectors will benefit. That is one area where I see a positive outcome to emerge.”

Sheikhani adds that the fact that taxes will be computed based on the property’s covered area (instead of the value) will be a major incentive for mid- and low-tier builders and developers as it will result in substantial savings. He is of the opinion that the fact that builders and developers will not be required to withhold tax on building materials, other than steel and cement, will prove to be beneficial as well. Bhatti adds that if taxes are waived on cement and steel, the construction sector would benefit even further. Muhammad Irfan Anwar Sheikh, Director Finance & CFO, Bestway Cement, agrees. “An important step that could lead to increased cement sales is to reduce the Federal Excise Duty (FED). Pakistan’s development is dependent on products such as cement and it should not be subject to FED.”

Sheikhani is confident that the incentives will bear fruit shortly, especially as all transactions will be digitised through Iris and approvals from various government entities (such as building authorities and utility companies among others) will now be, as per the government’s directives, ‘one window operations’ and be completed online within 45 days.

Furthermore, building bylaws will be updated in a uniform manner across the country through this system. This, he says, will reduce the number of illegal buildings as all projects have to be registered with Iris. He adds that prior to this, builders and developers used to show reduced profits in order to pay lower taxes and “this will bring much needed transparency to a sector that has been unregulated thus far.”


A Bumpy Road Ahead?

Not everyone shares Sheikhani’s optimism. A former ABAD chairman and developer, who spoke on the condition of anonymity feels otherwise. “Obtaining certifications and approvals from local authorities will prove to be a herculean task. Furthermore, the deadlines for registering projects (December 31, 2020) and for completing grey structures (September 30, 2022) are impractical, given the fact that approvals from various authorities take a long time to come through.” He adds that procuring the services of reliable contractors and workers, not to mention securing financing, will make it extremely difficult to meet the mandated deadlines.

Naeemuddin A. Siddiqui, Former Chairman, Constructors Association of Pakistan (CAP) and CEO, Ziauddin Ahmed & Company, has his own reservations. Although he believes they are a step in the right direction, he points out that formalising the industry was tried by the Nawaz Sharif government in the nineties but never materialised. “Even today, despite the talk about formalising the industry, we have yet to receive any notifications regarding this and what it will mean for the industry.” In his opinion, the major issue is that the majority of construction activities are not carried out by certified or professional companies and that regulating the industry to ensure that only licensed professionals should be allowed to work on registered projects should be a priority for the government.

Another issue is securing financing. Although there is talk about lower interest rates, no concrete steps have been taken in this direction. “Because the sector is not regulated, we are unable to receive financing and guarantees from banks. As a result, we are unable to meet our project deadlines, which further cuts into our margins.

Furthermore, no specific incentives have been announced for contractors, and they should have been brought on board prior to announcing the package and related incentives,” says Siddiqui. “We requested that the government establish a dedicated financial institution (like in other countries) that mandates the provision of financing to the industry through lending techniques that are different from those that regular commercial banks offer.”

He adds that when builders and contractors go to a bank to secure a loan, they are asked to provide collateral or liquid assets that they do not have as the requirements are too high. “If we had that kind of money, we would not need a loan the first place. The right model would be to issue a guarantee based on the project’s receivables. That is why we have requested that the government establish a Construction Infrastructure Development Bank, a common practice in many other countries.” He says that in other countries, such banks also serve as an intermediary body between developers and the people who buy property.

The bank safeguards the interests of both parties and ensures that developers complete their projects in the stipulated time, secure the services of licensed builders and contractors and do not increase property prices randomly. Similarly, to safeguard the developer, such banks ensure that the buyers pay their instalments on time.



Promoting Low-Cost Housing

As far as financing is concerned, the main incentive at the banking end of the spectrum is aimed at people who own five and 10-marla plots (see Building Dreams on Solid Foundations), who can now take advantage of reduced and/or competitive interest rates to build houses on these plots.

According to Muhammad Afaq Khan, Head of Islamic Banking, HBL, “a steering committee has been set up under the chairmanship of the Governor of the State Bank of Pakistan (SBP) and the Chairman of the Naya Pakistan Housing & Development Authority (NAPHDA). The presidents of six banks, including HBL, are members of this committee.” As a result, several banks including Bank of Punjab, HBL, Meezan Bank and UBL, are promoting home financing options such as the ‘Mera Pakistan Mera Ghar’ initiative.

Although it is too early to comment on the response to the initiative, Khan says “HBL will offer mortgages, including for low cost housing, through our Islamic Banking. We are gearing up to scale up the business and are committed to ‘Mera Pakistan Mera Ghar’.


Cautious Optimism

Given that the construction package was only announced five months ago, the full response remains to be seen. As of August 14, according to DAWN, 40 projects have been registered and 4,812 are drafted for registration. The Minister for Information and Broadcasting, Senator Shibli Faraz, expects that projects worth Rs 400 billion will be registered by the end of 2020. Furthermore, ABAD has pledged to invest Rs 1,370 billion in various construction projects, including residential ones specifically for the NPHP, in addition to 30 to 40 high-rise buildings in Karachi and at least 1,000 more projects across the country.

According to Fahd K. Chinoy, CEO, Pakistan Cables, the incentives have induced a “somewhat positive sentiment in the market.” He says indicators such as rising cement and steel sales have given rise to “cautious optimism that the construction package will bring about a boost in downstream demand for building materials, including wires and cables.” He points out that “housing societies such as DHA are showing signs of activity as they roll out development plans for new phases in Bahawalpur, Lahore, Multan and Peshawar.

However, several projects are at very early stages and it will be some months before they reach the level of maturity where orders for cables are placed.”

A representative of a private cement company confirms that demand for cement has started growing, especially in northern and southern Pakistan and the All Pakistan Cement Manufacturers Association recently announced that the consumption of cement has increased by five percent and amounted to 3.5 million tons in August.

Sami too is cautiously optimistic. “SBP has played an immense role in aggressively cutting interest rates and stimulating the economy and signalling intent to make low-income housing finance easier. Furthermore, the government has encouraged banks to allocate five percent of their portfolio to the construction segment.”

In Jakvani’s view “these incentives will be of most benefit for mid-tier and small developers and builders. That said, the incentives will also affect the real estate sector in a positive way and given that property prices have started to rise, I foresee almost 100% growth in property transactions within six months.”

Given all the above, it is too soon to judge whether or not the construction sector will be able to revive Pakistan’s economy. Nevertheless, if the December 31, 2020 deadline for registering projects is extended and if the formation of RERA, CIDB and ‘one window’ operations for approvals are expedited, the chances are fairly good that the impact on the economy will be positive.

Major Incentives in the Package

  • Investors, developers and builders will not be questioned about their sources of income.
  • Taxes will be computed according to the size of the property (per square foot or per square yard) instead of the price of the property (the case previously) and as a result will be substantially lower.
  • Builders and developers will not be required to withhold tax when purchasing building materials (except steel and cement) and on certain services (such as plumbing).
  • If builders and developers take on a project related to low-cost housing under the Naya Pakistan Housing Program, taxes will be reduced by 90%.
  • Sales tax and excise duties levied on construction materials will be reduced.
  • Owners of five- and 10-marla residential plots will receive subsidised house building loans.
  • People constructing, buying or selling their first houses are exempted from several taxes and fees, including Advance Tax, Capital Gains Tax, Stamp Duty Tax and Registration Fees.
Additional reporting by Uzma Khateeb-Nawaz.
 

ghazi52

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Pakistan’s construction industry

Pakistan’s construction industry has always been of economic and social significance to the country. However, the share of construction industry in Pakistan’s economy is not as big as we see in other countries, whereas we see a lot of demand for new houses, apartments, and many other related structures in Pakistan.

Present federal government has promised to construct 5 million new houses in its five years term, out of which almost 2 years have gone, which means 5 million houses in next 3 years. Besides others, one of the attractive features of construction industry these days is government commitment to construct 5 million new houses which gives hope to the people associated with the construction industry.

Globally, construction industry is regarded as one of the largest fragmented industry. The construction industry is also a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force.

The housing and construction sector in Pakistan can play an important role in developing aggregate economy and reducing unemployment. It provides substantial employment opportunities as it contributes through a higher multiplier effect with a host of beneficial forward and backward linkage in the economy.

The sector through linkages affects about 40 building material industries, support investment and growth climate and helps reduce poverty by generating income opportunities for poor household. It provides jobs to over 6 percent of the total employed labor force or to over 3 million persons. Unfortunately the construction sector is also one of the most neglected sectors in Pakistan. Even with the opportunity for growth the challenges are also extensive.

The government has decided to provide special tax relief and incentives to businesses/industries related to construction sector and support low-cost housing projects such as Naya Pakistan Housing Project (NPHP). Tax authorities are also working on simplifying fixed tax scheme for developers and builders, offering a 90 percent reduction in tax for low-cost housing schemes, particularly the Naya Pakistan Housing Authority (NPHA).

Signing of the China-Pakistan Economic Corridor (CPEC) agreement and improvement in the country’s security situation has been the key to giving boost to not only the construction industry, but Pakistan’s image abroad. This sector can be an important recipient of foreign direct investment (FDI).

Locally, investment can also boost by government policies such as reduction in duties and taxes on building materials like steel, construction machinery and equipment and computerization of land ownership records.

The construction industry is an important sector of the economy and has multiple backward and forward linkages with other sectors. This industry contributes significantly to socio-economic development and employment. Pakistan is a developing country that has a potential of relatively strong growth in construction activities.

Today, construction is the second largest sector in Pakistan’s economy after agriculture. Roughly 30-35 percent of employment is directly or indirectly affiliated with the construction sector. In order to capture the potential of construction sector in Pakistan, the Government of Pakistan is planning extensive infrastructure expansion programs. All of these programs will have the potential to lead the local Industry to establish scale, status and international recognition.

Till 1971, there were very few private developers/constructors in Pakistan thereafter local developers started developing housing schemes especially state owned big corporations (WPADA, KDA, LDA etc.). During 90s and especially in the first decade of 2000, we see private sector very active in construction activities. After nationalization, federal government also allocated massive funds to Housing Building Finance Corporation (HBFC), a number of entrepreneurs, industrialists, businessmen, importers, consultants, etc, also entered in the construction industry. Some of them had experience in building construction while others had neither enough managerial capability nor sufficient technical knowledge.

When the construction industry got a boost, the builders and developers gathered to form associations such as Association of Builders and Developers (ABAD) with the objectives of improving the state of the industry as well as to provide a platform to showcase and address pertinent issues.

Construction activities and its output is an integral part of a country’s national economy and industrial development. The construction industry is often seen as a driver of economic growth especially in developing countries. The industry can mobilize and effectively utilize local human and material resources in the development and maintenance of housing and infrastructure to promote local employment and improve economic efficiency.

The construction industry on the economy occur at all levels and in virtually all aspects of life. This implies that construction has a strong linkage with many economic activities and whatever happens to the industry will directly and indirectly influence other industries and ultimately, the wealth of a country. Hence, the construction industry is regarded as an essential and highly visible contributor to the process of growth.

Construction industry is also highly labor intensive sector and a strong growth in this sector generates a variety of jobs. Pakistan now offers a growing market for the construction industry. In coming years, we see more dams and other projects to be announced for the feasibility and construction. Construction of mega projects such as dams has been announced. Other projects like motor ways and several other infrastructure projects are in progress.

There is a tremendous need for application of professional construction project management, tools, skills and techniques, which cannot be achieved unless efforts are not extended toward educating the industry, regulatory bodies and owners as well as improving and strengthening the construction industry practices. Successful implementation of construction project management in Pakistan construction industry can be achieved through hands-on leadership, upfront preparation and continuous maintenance with a sensible plan.

Major obstacles to improving the performance of Pakistani construction industry were found to be lack of expertise/resources in construction project management and its applied areas.

A rigid attitude and behavior toward quality, safety and risk management can bring a lot of improvement in the construction sector.

A lot of R&D is going on in the construction industry worldwide, where Pakistan should also adopt new techniques in this sector.

A change in the views and attitude through awareness programs can bring a prominent and distinctive change in the project management status in Pakistan not only among stakeholders/owners but also in the entire construction industry.

Considering the significance of the construction sector, it is necessary to identify the major issues affecting the efficiency of the sector and take corrective action for increase in economic growth and development of Pakistan.
 

ghazi52

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As a result of Govt's initiative to promote construction activity & affordable housing, the construction sector which accounts for 2.6% of the GDP showed a growth of 8.34% in
2020-21 & housing services which accounts for 6.97% of the GDP had a growth rate of 4%.



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ghazi52

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6 real estate investment trusts worth Rs38bn expected this year

The Newspaper's Staff
July 21, 2021 -


REITs collect money from investors and deploy it in real estate projects. — Photo courtesy Sana Agboatwala/File


REITs collect money from investors and deploy it in real estate projects. — Photo courtesy Sana Agboatwala/File



KARACHI: After six years of radio silence from over half a dozen companies with a licence to manage real estate investment trusts (REITs), as many as six transactions worth up to Rs38 billion are likely to take place within 2021-22.

Speaking to Dawn in a recent interview, Arif Habib Dolmen REIT Management CEO Muhammad Ejaz said his company will soon launch four REITs in addition to the two schemes that the company announced earlier this month.

REITs collect money from investors and deploy it in real estate projects. They operate like any other company but offer more transparency to investors as trustees control all assets and the entity must list on a stock exchange within three years. Small investors can then take exposure to an otherwise capital-intensive and illiquid real estate market by publicly trading REIT units just like ordinary shares.

Mr Ejaz’s REIT management company – which is a joint venture between Arif Habib Group and Dolmen Group with equal shareholding – created the country’s first REIT that securitised and sold Dolmen Mall Clifton and the adjoining Harbor Front building in a Rs22.2bn transaction back in 2015. The REIT sector remained dormant for the next six years as unfavourable changes in the tax and regulatory regimes discouraged investors, Mr Ejaz said.

Changes made by SBP, FBR and SECP hailed for bringing investors back
“Key changes by the State Bank of Pakistan, Federal Board of Revenue and the Securities and Exchange Commission of Pakistan played an important role in bringing investors back to REITs,” Mr Ejaz said.

With a fund size of Rs3bn, Arif Habib Dolmen REIT Management has recently launched Silk Islamic Development REIT in Surjani Town, a low-income area in the northern part of Karachi. The second scheme, to be launched under the name of Silk World Development REIT in the same area, will have a fund size of Rs5bn.

As for the other four schemes, the CEO said they will have a collective fund size of Rs30bn and be located in more than one city.


Transaction structure

The REIT management company led by Mr Ejaz is one of the five equal shareholders in Silk Islamic Development REIT. Other investors include Yunus Brothers, Arif Habib Group, Liberty Group and Fatima Group.

As its trustee, the Central Depository Company (CDC) is currently holding Rs3bn in an account on behalf of the five shareholders. The REIT management company will use this money to purchase the 60-acre piece of land from a group of sellers led by Silkbank.

According to Mr Ejaz, land sellers will get a partial payment upfront and receive the rest of dues from the proceeds of the project. “The deferred payment arrangement has made the project more viable,” he said.

Noting that the project design details have not been finalised, Mr Ejaz said the scheme will likely have 12,000 two- and three-bed-plus-lounge residential units. “I can’t give you any price range right now.

Construction costs are too volatile,” he said, adding that the scheme will start selling flats in 16 to 18 months. Allottees will get possession within four years of the project launch, he added.
“We’re building flats for middle-class families with household incomes ranging from Rs80,000 to Rs250,000… those who stretch themselves and buy a Corolla are middle-class people,” he said when asked what he meant by the middle class.

The second REIT scheme, to be located on an 86-acre piece of land, has only one shareholder: World Group owned by Mehmood Trunkwala. This scheme will have 1,500 villas and an equal number of apartments in addition to 600 low-cost residential units to be sold under the Naya Pakistan Housing Programme.

Both REITs will have to go public within three years. Sponsors will offer at least 25 per cent of their shareholding to the general public through a listing. Alternatively, the existing shareholders can issue new units or shares to raise fresh cash for project needs.

Published in Dawn, July 21st, 2021
 

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ICEE 2021 EXPO
August 3, 2021





Rawalpindi: /DNA/ – The three day exhibition on interior, construction, electrical and electronics (ICEE 2021) being organized by the Rawalpindi Chamber of Commerce and Industry (RCCI) ended on a high note.

The exhibition which was held at Pak-China Friendship Center Islamabad in collaboration with Naya Pakistan Housing Authority, more than 25 companies including marble, sanitary, tiles, cables, electronics and state-owned banks set up stalls.




A conference was also held on the occasion. In a detailed presentation, Deputy Chairman Naya Pakistan Housing Authority Major General (r) Aamer Aslam Khan briefed about the latest developments on the housing project under the authority. He said that so far more than 37,000 applications have been received for loans amounting 127 billion. So far, loan applications worth Rs 46 billion have been approved.

He said that construction of low cost houses is an important task of the authority and an effective strategy has been adopted to implement it. We are also in touch with the private sector to meet the growing demand for building materials such as cement, tiles, sanitary ware, plastic pipes and cables.

Addressing the closing ceremony, Chamber President Nasir Mirza said that the Expo Center was the hour of need for the promotion of exports and products. Instead of privatizing the convention center, convert it to an expo center, he suggested. Industrial zones should be set up along the Rawalpindi Ring Road to promote the industry which can be helpful in meeting high demands in the construction sector.

Prime Minister Imran Khan who was chief guest of the closing ceremony of the Expo, lauded RCCI on the successful exhibition on the subject of construction. “I have visited the stalls and taken feedback on the spot,” Khan said. He welcomes the RCCI’s proposal to convert the convention center an expo center. The city of Rawalpindi has also been converted into concrete structure. More and more trees will have to be planted to eliminate pollution.

A master plan is being drawn up for each city and any construction in the future green areas will be prohibited, the PM added. Chairman NAPHDA General (r) Anwar Ali Haider also spoke on the occasion and shared the progress and strategy of housing authority on Naya Pakistan Housing Project.
The citizens have shown great interest in the exhibition. Minister for Railways Azam Khan Swati, Special Assistant Shahbaz Gill, Chairman Commerce Committee in the Senate Zeeshan Khanzada and Ambassador of Nepal Tapas Adikari also visited the exhibition and appreciated the quality of the products.
 

Hakikat ve Hikmet

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When the construction, transportation, house appliances etc. show real growth rate it means GDP in fact is growing for the common folks! In comparison, India and BD are both showing contractions in these sectors…..
 

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