Housing construction is one of the largest sectors of most major economies in the world. In the United States, for example, housing is a significant contributor to the American economy, providing millions of Americans with jobs and generating hundreds of billions of dollars of economic output each year. It is also an important source of wealth building. Beyond economic measures, homeownership and adequate rental housing also contributes to society.
The construction and sale of new homes make direct contribution to GDP, based on the value of the housing built. However, the sales of existing homes do not enter into the calculation of the nation’s domestic output, just as a used car sales do not get entered because the transaction does not represent a new production. However, purchases related to the transaction of existing home sale do get included in the GDP. For example, all payments for services rendered, such as real estate agent commissions, home inspection, attorney, and loan origination fees, are included.
Currently, Pakistan has a serious housing crisis and needs about 7 million additional housing units now, according to the data presented at the World Bank Regional Conference on Housing last year. 
According to BMI research, the country’s real estate sector continues to be dominated by the two major issues of a chronic shortage of housing against a backdrop of rapid urbanization and rising population and the impact of security factors on the risk appetite of investors and developers.
The first of these factors remains as intractable as ever, with the most recent estimates identifying shortfall of 7.9mn houses. By contrast, the current government is committed to building just 1 million houses. Other estimates paint a similar picture with the Punjab province, with a population of 82 million, said to be facing a shortage of 5 million houses. By some accounts, nationally there is an incremental demand for 700,000 units a year against the annual construction of just 150,000 units.
As to the second factor, the major projects currently moving forward are being executed by risk-tolerant developers from regions such as the Gulf Cooperation Council(GCC) and government or government-linked landowners in Pakistan. This has significantly reduced the scope to provide housing at the level required to supply the backlog. Recently, however, there are reports that Malaysian developers are coming to Pakistan, according to Malaysian news agency Bernama in August 2009. The Malaysian developers are negotiating to build some 500,000 low-cost houses annually in various parts of Pakistan.
The recent Dubai debt crisis will likely hurt some Pakistani workers in the Gulf region. However, the flip side of Dubai troubles is that many of these Gulf developers will look at Pakistan where real estate investments have always been winners, regardless of the political or economic environment. The supply has continued to lag demand for housing, retail and office properties.
The Gulf and Malaysian investments in housing can potentially help resuscitate Pakistan's currently moribund economy by creating millions of new jobs directly and indirectly. Construction is one of the most labor intensive economic activity requiring large numbers of workers, creating hundreds of thousands of jobs. And when the buyers move in, they will demand all kinds of products and services to furnish their homes, thereby creating further employment opportunities. All of this is offers a great recipe for reigniting economic growth and renewed prosperity in Pakistan.
A new wave of housing construction offers an opportunity to the PPP leadership to live up to at least one of their election promises included in their "roti, kapda and makaan" platform. Looking back at the history of the political platforms that have succeeded, what comes to mind is the name of President Franklin Roosevelt and his "New Deal" , as well as the successive US Presidents' policies on "The American Dream" of home ownership for all. These policies helped reduce poverty and enhanced education and housing for a large number of people in the US. New housing construction can also help reduce poverty in Pakistan.
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11 comments:
Here's an interesting report by Reuters in Pakistan:
By Alistair Scrutton
ISLAMABAD (Reuters) - If you want a slice of peace and stability in a country with a reputation for violence and chaos, try Pakistan's M2 motorway.
At times foreign reporters need to a give a nation a rest from their instinctive cynicism. I feel like that with Pakistan each time I whizz along the M2 between Islamabad and Lahore, the only motorway I know that inspires me to write.
Now, if the M2 conjures images of bland, spotless tarmac interspersed with gas stations and fast food outlets, you would be right. But this is South Asia, land of potholes, reckless driving and the occasional invasion of livestock.
And this is Pakistan, for many a "failed state." Here, blandness can inspire almost heady optimism.
Built in the 1990s at a cost of around $1 billion, the 228-mile (367-km) motorway -- which continues to Peshawar as the M1 -- is like a six-lane highway to paradise in a country that usually makes headlines for suicide bombers, army offensives and political mayhem.
Indeed, for sheer spotlessness, efficiency and emptiness there is nothing like the M2 in the rest of South Asia.
It puts paid to what's on offer in Pakistan's traditional foe and emerging economic giant India, where village culture stubbornly refuses to cede to even the most modern motorways, making them battlegrounds of rickshaws, lorries and cows.
There are many things in Pakistan that don't get into the news. Daily life, for one. Pakistani hospitality to strangers, foreigners like myself included, is another. The M2 is another sign that all is not what it appears in Pakistan, that much lies hidden behind the bad news.
On a recent M2 trip, my driver whizzed along but kept his speedometer firmly placed on the speed limit. Here in this South Asian Alice's Wonderland, the special highway police are considered incorruptible. The motorway is so empty one wonders if it really cuts through one of the region's most populated regions.
"130, OK, but 131 is a fine," said the driver, Noshad Khan. "The police have cameras," he added, almost proudly. His hand waved around in the car, clenched in the form of a gun.
On one of my first trips to Pakistan. I arrived at the border having just negotiated a one-lane country road in India with cows, rickshaws and donkey-driven carts.
I toted my luggage over to the Pakistan side, and within a short time my Pakistani taxi purred along the tarmac. The driver proudly showed off his English and played U.S. rock on FM radio. The announcer even had an American accent. Pakistan, for a moment, receded, and my M2 trip began.
Built in the 1990s by then prime minister Nawaz Sharif, it was part of his dream of a motorway that would unite Pakistan with Afghanistan and central Asia.
For supporters it shows the potential of Pakistan. Its detractors say it was a waste of money, a white elephant that was a grandiose plaything for Sharif.
But while his dreams for the motorway foundered along with many of Pakistan, somehow the Islamabad-Lahore stretch has survived assassinations, coups and bombs.
A relatively expensive toll means it is a motorway for the privileged. Poorer Pakistanis use the older trunk road nearby tracing an ancient route that once ran thousands of miles to eastern India. The road is shorter, busier and takes nearly an hour longer.
On my latest trip, I passed the lonely occasional worker in an orange suit sweeping the edge of the motorway in a seemingly Sisyphean task.
http://en.wikipedia.org/wiki/Golden_Quadrilateral
India has multiple mode of transport across cities
India has 92 airports with 12 international airports
http://travel.mapsofindia.com/transportation-and-communication/airports-in-india/airport-locations-in-india.html
http://www.aircraft-charter-world.com/airports/asia/pakistan.htm#M
where as pakistan has 42 civil airports. Further india has got one of the largest railway network to connect all corners of the country.
anon: "India has multiple mode of transport across cities.....
India has 92 airports with 12 international airports...where as pakistan has 42 civil airports. Further india has got one of the largest railway network to connect all corners of the country."
The numbers you quote for India are not impressive. Based on its population and area, India should have 5 to 7 times as many airports and larger railway track and road network as Pakistan.
Here's a sense of reality as pointed out by Dalrymple who compared both nations on 60th anniversary of partition:
"On the ground, of course, the reality is different and first-time visitors to Pakistan are almost always surprised by the country's visible prosperity. There is far less poverty on show in Pakistan than in India, fewer beggars, and much less desperation. In many ways the infrastructure of Pakistan is much more advanced: there are better roads and airports, and more reliable electricity. Middle-class Pakistani houses are often bigger and better appointed than their equivalents in India.
Moreover, the Pakistani economy is undergoing a construction and consumer boom similar to India's, with growth rates of 7%, and what is currently the fastest-rising stock market in Asia. You can see the effects everywhere: in new shopping centers and restaurant complexes, in the hoardings for the latest laptops and iPods, in the cranes and building sites, in the endless stores selling mobile phones: in 2003 the country had fewer than three million cellphone users; today there are almost 50 million."
William Dalrymple
14 August, 2007
The Guardian
Here's an Indian report from last year about India significantly lagging Pakistan in clean energy and CNG usage:
New Delhi, May 5, 2008
India is way behind Pakistan in terms of its gas pipeline network, with the neighbouring country’s network stretching around 56,400 km against its 10,500 km, connecting only 20 cities compared to Pakistan’s 1,050, industry body Assocham said.
Pakistan’s pipeline density, at present is 1044 km/mmscmd (million metric standard cubic meter per day) per day compared to 116 km/mmscmd of India, Assocham said in its paper on gas sector ‘A Comparison between India and Pakistan’.
The neighbouring country has created a 31,000 km distribution network to serve its domestic and commercial consumers in large locations, against the 11,000 km network that have so far been build in India to serve the needs of its consumers in limited pockets, the report said.
While Pakistan has nearly 1,600 CNG stations, India has 380. The gas throughput in Pakistan is 38 mmscmd per day as against 8.5 mmscmd gas in India.
The number of gas customers and vehicles running on CNG in Pakistan is about 19 lakh and 15.6 lakh respectively, while in India the number is 5.50 lakh and 4.60 lakh.
“The gas availability in Pakistan is undoubtedly quite large, compared to India but given the imports of gas and even its domestic availability in India, its pipeline network is extremely poor and the main reason attributed for the low and limited pipeline network in India is because this sector has been thoroughly regulated which has now been opened for competition,” Assocham president Venugopal Dhoot said.
The paper added that since the pipeline network in India does not reach out to most of the potential demand centres, a number of industrial projects, which would ideally run on gas, have to depend on much more costlier and more polluting alternative fuels.
“Thus the unmet gas demand in India is probably much higher than what is reported,” he said, adding India, “at present has only one major cross country pipeline in the form of Hizira-Bijaipur-Jagdishpur pipeline and there is estimated to be considerable unmet demand even in the states serviced by this pipeline”.
With the increased availability of gas, the country needs to gear up quickly to meet the increased requirement of cross country as well as regional and local downstream gas distribution networks, he said. — PTI
http://www.tribuneindia.com/2008/20080506/biz.htm#1
The corruption of Pakistani politicians is exceeded only by their incompetence. With economy in virtual recession, the FDI is dropping as reported by The News:
Thursday, December 17, 2009
KARACHI: Net foreign investment in Pakistan fell 25.6 per cent to $1.08 billion in the first five months of the 2009/10 fiscal year compared with $1.45 billion in the same period a year earlier, the central bank said on Wednesday.
Out of total foreign investment, foreign direct investment fell 52.2 per cent to $774.0 million in the first five months of the fiscal year which began on July 1 from $1.62 billion for the same months last year, the State Bank of Pakistan said.
But foreign portfolio investment flows reversed, with a $311.3 million inflow in the July to November period compared with an outflow of $162.9 million in the same period last year.
Authorities imposed a floor on the Karachi Stock Exchange benchmark index in August last year as political uncertainty and economic and security worries drained investor confidence.
The floor discouraged new investment and also led to a sharp outflow of funds, as foreign investors sold holdings in off-market trade.
The floor was removed in December. The International Monetary Fund (IMF) saved Pakistan from a balance of payments crisis with a $7.6 billion emergency loan package in November last year. The loan was increased to $11.3 billion on July 31.
Pakistan’s economy is in virtual recession as gross domestic product growth in the 2008/09 fiscal year of 2 per cent is about the same as population growth. The IMF has projected GDP growth flat at 2 per cent this fiscal year.
Security concerns over a Taliban insurgency based in the country’s northwest and chronic power shortages have also put off investors.
Moderated by Saad Khan, a partner at CMEA Capital, there was a social entrepreneurs panel at Open Forum 2010 that featured Salman Khan of Khan Academy, Leila Janah of Samasource, Tabreez Verjee of Kiva, and Misbah Naqvi of Acumen Fund.
The panelists described what they do as social entrepreneurs and what led them to it. Salman Khan started at a hedge fund before he was inspired by a cousin and her friends to create Khan Academy for tutoring math and science via his Youtube channel.
Leila Janah of Samasource went to work for the World Bank in Washington to fight poverty, but she was soon soured by the bank bureaucracy whose focus was on self-interest rather than the interest of the world's poor which it is supposed to serve. Her first day at the World Bank was spent at a seminar advising bank employees on financing a second home. She quit her job to found Samasource, which is a non-profit service that seeks contracts from companies in the West, and slices large contracts into microwork tasks like data entry, software testing, transcription and research outsourced to the poor, but educated, workers abroad.
Tabreez Verjee serves on the board of Kiva, a Silicon valley startup that combines microfinance with the Internet to create a global community of people connected through lending. The company allows lenders to lend amounts as small as $25 and choose who to lend to via the Internet. The funds are disbursed to small entrepreneurs and loans repaid using existing microfiance companies operating in different parts of the world. Kiva is working with Asasah microfinance in Pakistan.
Misabah Naqvi is the business development manager of Acumen fund which invests in social enterprises. She was originally a banker in Pakistan before joining the Acumen Fund. The fund is a business rather than a charity, and puts all of its returns back into the fund to support more social efforts based on sustainability, scale and social impact. In addition to investing in microfinance, the Acumen fund has invested in Saiban which is building low-cost housing in Pakistan.
A recent World Bank report on housing in South Asia mentions lack of housing finance as one of the key impediments to more low to middle class housing.
It says that "Pakistan's finance-to-GDP ratio in below 1 percent. The ratio in developed countries is 50-70 percent, and 7 percent in India."
It adds that "in spite of active and robust financial sector reforms led by the State Bank of Pakistan [SBP] in the recent decade, the unweildy land administration environment, unprecedented rises in land prices, and inadequate mortgage lender experience with lower-income housing have prevented the market from advancing in the provision of housing and housing finance solutions."
Here's an Express Tribune story on housing trends in Lahore, Pakistan:
...as the middle class of the city has expanded, real estate developers have now increasingly begun to offer more affordable variants of the gated housing community, primarily by reducing the size of the average house. Builders predict the fastest growth in demand for the 125-square-yard duplex or townhouse, which is made affordable by offering an instalment plan for the full price, which can start as low as Rs1.2 million.
“The higher end of the market is saturated. Now the industry needs to cater to the rapidly growing middle class that is seeking comfortable housing facilities,” said Abdul Aleem Khan, who runs a real estate development business based out of Lahore.
“After completing one project with mostly larger units, I announced that I would build one with smaller, more affordable units and an easy instalment plan,” he said. “The response was very positive. People clearly need affordable housing and this [middle class] is a very neglected market segment.”
Eden Housing, one of the largest real estate companies in Pakistan, was the first to create such housing schemes in the 1990s, which typically include better roads and infrastructure than the rest of the city they are in. Since then, this formula has been copied by many developers, who saw how rapidly Eden was able to sell off its inventory.
“To live in such a community, which provides you with good infrastructure and security, is relaxing,” said Mujahid Ali, a resident of Eden Avenue, a gated community in Lahore developed by Eden Housing. “I moved here two years ago and have the peace of mind that there is no street crime or robberies within the scheme’s premises. My job requires me to visit other cities and I used to worry for my family’s safety. But since moving here, I can travel without that tension.”
Many of the facilities have hired a full-time staff of maintenance staff. The security is often provided by one of the more than 600 private security companies that now hire out both equipment and guards to a Pakistani middle class that is increasingly concerned for its safety.
Lahore has at least two dozen of these gated communities. In keeping with the temperament of the people in the Central Punjab region, there are hardly any apartments. Most of the housing units are bungalows, townhouses or duplexes. Some of the largest units can be spread over as much as 1,200 square yards, with the smallest ones generally being no more than 125 square yards. Other common sizes include 150 and 200 square yard units.
Builders often locate these communities close to major thoroughfares. Yet as real estate within Lahore proper grows increasingly scarce, many developers have begun to create such offerings on the outskirts of the city, taking advantage of the improvements in the transportation infrastructure in Punjab that includes a highway network comparable to that in some parts of the developed world. Once Lahore’s Ring Road is completed, such housing projects will be able to offer even faster access to the inner city.
Khan, the real estate developer, says that nearly all of the buyers of houses in these projects tend to be buying their own primary residences. “These schemes are not really meant for investors,” he said.
http://tribune.com.pk/story/328177/the-rise-of-pakistans-middle-class-as-crime-rises-property-developers-beef-up-security/
Here's a 2011 Dawn Op Ed on cement industry by Pakistan Cement Industry Association leader Tariq Saigol:
While the private sector performed magnificently whenever provided with an enabling environment, the response of the present government remains mired in confusion and inertia. Installed capacity was a paltry nine million tons in 1990, much of it being grossly inefficient as it was based on the outmoded wet process technology. As demand rose, the industry responded by launching a massive expansion programme. Over time, the installed capacity rose to nearly 44 million tons, a magnificent feat by any standards and a credit to the entrepreneurial spirit of the private sector.
However a number of adverse developments from 2007 onwards have brought the GDP growth to some two per cent. It is being reported by the media that the revised allocation after the latest cut, is a measly Rs180 billion. High inflation combined with slump in real estate and increase in the cost of production due to weakness of the dollar, resulting in a spike in coal prices, electricity and freight rates and accounting for 70 per cent of the cost, has adversely affected consumption while production cost soars, retarding construction activity in the private sector.
The current economic environment including low public spending has had disastrous consequences for the cement sector.
Local sales during the first half of the current fiscal year have witnessed an eight per cent year on year drop to around 10.1 million tons. Simultaneously, exports fell from 5.6 million tons to 4.6 million tons. The bad news does not end here. On top of low volumes, the average cement FOB prices fell to $48 per ton during the corresponding period— a level low enough to hardly break even.
Consequently cement sales through the sea route alone declined by about one third. Cement sales to India were also hard hit on account of non renewal of BIS certification (a quality control licence). Burdened with high energy and freight costs as well, the manufactures are desperate for some government support.
But no support is forthcoming. One would expect the government’s economic planners to appreciate the tremendous odds against which the industry is battling. If care of the cement industry is in short supply, then some thought may be given to the enormous exposure of the banks which have provided financing to the tune of $1.5 billion to the sector during 2003-2008.
http://www.dawn.com/2011/03/14/opportunities-missed.html
Here's a blogger' view Pakistan's cement industry:
Cement is one of the most important industries of Pakistan. Limestone and gypsum are the main raw materials for manufacturing of cement and they are present in abundance in Pakistan along with good supply of Natural gas. This great potential makes the country capable of producing cement not only for local use but also for export as well. Pakistan cement industry has exporting cement to the neighbouring countries like U.A.E, Afghanistan, India, Iraq and Russia.
At present there are 22 cement plants are operating in Pakistan with the production of approximately 9.403 million tonnes. Out of these 22 cement plants, 17 are private and 5 are publicr. 11 new plants are also in planning stage and the capacity of these plants is estimated around 12.988 million tonnes. The industry has achieved a growth of 32% with the domestic demand increasing by around 24.95% and the exports by nearly 111.86% according to the financial year end June 30, 2007 ratings. Recently the country has been able to export to some of the African countries as well.
Cement industry is divided into two main regions; the northern and the southern region. Northern region is producing 35.18 million tonnes and southern region is producing 8.89 million tonnes of cement per year.
Per capita consumption of cement is an indicator of rate with which any country is developing. Unfortunately per capita consumption of cement in Pakistan is less if we compare it with other developing countries. It is about 131 kg per person annually; whereas world average is about 270 kg. This less consumption is due to the negligence given to the construction sector. However in last few years consumption of cement showed some rise due to increased commercial activities, infrastructural development and increasing demand of constructing houses.
Local demand for the year 2007-2008 was 20 million tonnes. Pakistan has started exporting cement few years back and has earned repute as a premium quality cement producer in the global market in this short period. Pakistan exported around 7.716 million tonnes of cement in 2007-2008 and earned a foreign exchange of 459 million dollars. There is surely a great potential of growth in this industry in Pakistan.
http://pakistan360degrees.contentcreatorz.com/cement-industry-of-pakistan/
Here are highlights of a presentation on Pakistan's cement manufacturing sector:
Beginning with just 500,000 tons in 1947, Pakistan's cement production almost tripled from 16 million tons in 2000 to 44 million tons in 2010.
At 145 Kg per person, Pakistan's cement consumption is up from 75 Kg in 2003, but still about half of the world per capita consumption average of 270 Kg.
http://www.slideshare.net/msaadafridi/cement-industry-of-pakistan
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