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In recent years, the cost of construction has gone up significantly, be it for commercial or residential projects. But there’s a silver lining; the quality of such products has increased significantly and there are a lot more options available to choose from nowadays. You can get imported tiles and furnishings or locally-produced imitations of all the things you need and want to make your house a dream home.
In addition, construction styles have also significantly changed over the years, and you’ll be easily able to find furnishings and fixtures that are dedicated specifically for homes and/or offices. In this blog, however, we’ll expand upon the changes in the cost of construction materials in Pakistan, with a special focus on the past three years (2018-2020). You’ll also find out what’s in store for 2021, so genuine buyers and investors can crunch in the numbers for their investment.
Patterns Associated With Higher Cost Of Construction In 2021
The cost of construction depends on a number of factors. Broadly these can be categorized as:
- Location of property (in city and locality)
- Covered area
- Design and layout
- Kind of materials being used
Under-construction houses can be categorised depending on the materials being used, however, other costs such as labour mostly remain the same throughout. An A+ category project of any size or scale will cost more than an A category project of the same size and scale. To help you better understand the difference, you can find the latest costs of constructing of an A+ and A category 5-marla house, an A+ category 10-marla house, and an A+ category 1-kanal house in our blogs.
While labor is a fixed cost, it differs across cities and localities. But during the last three years all of the variable costs have increased as:
| Construction Material | Change in Price (Dec 18 – Dec 20) |
| Cement | 19% |
| Steel bars and sheets | 23% |
| Bricks, blocks and tiles | 22% |
| Glass Sheets | 7%% |
| Pipe fittings | 32% |
| Paints and varnishes | 15% |
| Ceramics and Sanitary Fixtures | 9% |
| Construction input items | 23% |
| (Source: Pakistan Bureau of Statistics Monthly Price Indices) |
The data shows how the rates of the primary materials used in construction projects have significantly increased during the last three years.
While the cement industry is expanding, prices are expected to remain under control as the government has introduced a number of initiatives for the construction sector.
During the second quarter of fiscal year 2020-2021, cement sales soared reaching 15.1 million tonnes, according to numbers reported by a leading newspaper. This is an increase of 11% quarter-on-quarter as well as year-on-year basis. As coal is used in the production of cement, its price has also gone up, coming at around USD 90 per ton free-on-board (FOB) compared to USD 60 per ton FOB at the end of October 2020.
The Pakistan Association of Large Steel Producers has notified that the prices of steel are increasing globally, and a similar trend can be observed in Pakistan as well. As per figures recorded by Pakistan Bureau of Statistics, imports of iron and steel scrap (raw materials for making steel bars) stand at 2.68 million tonnes, costing USD 949 million in July-December FY ‘21 as compared to 2.062 million tonnes, hovering at USD 806 million, during the same period last FY.
Data gathered by the research team at Dawood Hercules Corporation, a holding company with ownership stakes in Engro Corporation, suggests steel and cement prices may increase further in the international market. Meanwhile, research analysts at JS Global, a broking and investment banking firm in Pakistan, have concluded that this pent up demand due to Covid-19-triggered supply chain disruptions will eventually be satiated and cause prices to drop in the coming months.
Hassan Bakhshi, the former chairman of the Association of Builders and Developers, as quoted by a leading daily, revealed that the cost of construction on a high-rise project has risen by 6% to 9% as steel bars hold 40% to 45% share in total construction cost of such developments. The cost of construction in Pakistan for housing projects has also crawled up by 4% to 6% as the share of steel bars ranges between 15% and 20% in the total expenditure.
As overall costs are increasing, and so is the cost of labour. In such times, development projects can be significantly delayed and not be completed in the stipulated timeframe that the developer had promised earlier. The end cost of the project might also increase as the developers are unable to absorb the rising costs themselves. However, this does not mean that the economy is experiencing stagnation. Tax exemptions in the construction sector are generating rapid activity and creating opportunities in associated industries as well.
Pakistan’s Construction Trends 2021
The government is working round the clock to boost the construction sector of Pakistan. The year 2020 was difficult to survive for most economies due to the Covid-19 pandemic. Overnight, all activities came to a standstill. However, Pakistan adopted a sector-wise approach when it came to lifting lockdowns, and the first sector to resume activity was the construction sector. It, therefore, comes as no surprise that the construction sector is booming.
A number of incentives for the construction sector were introduced in the last year. Despite the pandemic shutting down the world in 2020, a plethora of construction-related incentives by the incumbent government not only helped the sector to survive, but thrive. Its impact was also felt in associated industries.
As per Prime Minister Imran Khan’s announcement, the government will not collect any sales and fixed taxes from construction activities being carried out under the Naya Pakistan Housing Program (NPHP). PM Khan has also created a special committee to address the problem of rising steel prices. The committee consists of Minister for Industries Hammad Azhar, Chairman Federal Board of Revenue Jawed Ghani, chairman Naya Pakistan Housing Development Authority and the private sector stakeholders. He is also holding regular meetings with prominent members to ensure nothing gets in the way of reviving the country’s economic growth, especially from the construction sector.
Investors and developers need not worry about the rising cost of construction. For most genuine buyers, it would be advisable to wait a little if you are constructing your house on a budget. However, now that the government is self-regulating the sector, the gains can be seen coming in shortly. For investors and buyers, this is the perfect time to invest mixed-use, high-rise projects and make the most of government’s tax exemptions.
This brings us to the end of our analysis of the cost of construction in Pakistan over the past three years and what to expect in 2021. If you have any queries, write to us at blog@zameen.com. For more updates on the property sector of Pakistan, keep reading Zameen Blog.
