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The coronavirus, declared a pandemic in March 2020, brought the world to a standstill. Overnight, throughout the world, people were shut inside the confines of their homes, businesses stopped midway, educational institutions were shifted online, and the world changed dramatically. As all sectors of the economy suffered a setback, so did the construction industry. As this has been the greatest challenge in modern times, we take a closer look at the impact of the Covid-19 pandemic on construction activities across Pakistan.
Impact of the Covid-19 Pandemic On Construction
Initially, all under-construction projects came to a halt with the announcement of a country-wide lockdown. People who went home from work one evening, did not go back for a few months. With uncertainty and the fear of coronavirus everywhere, all sectors of the economy were brought to an immediate halt. Projects under construction were delayed indefinitely. The housing societies that had promised balloting, or were to issue plot files, collect development charges and even instalments suffered a major setback. All such processes were also postponed indefinitely. Therefore, the impact of covid on construction projects was adverse
The development sites where cement, steel or rebar was already dispatched, suffered increased costs as raw materials can be easily damaged due to negligence. Cement becomes harder when exposed to moisture. Glass can easily break and steel without proper coating rusts. Half-completed buildings or any kind of infrastructure are easily prone to wear and tear if not properly covered. In most cases, the developers pay the labour contractors in advance, who then give daily or weekly wages to the workers they hire. When all activities are suspended immediately, the amount that has already been paid to the labourers is now an additional cost because the workers are dispersed and will have to be hired again. In case of this pandemic, all workers had to leave the cities for their villages. This further delayed the construction work.
These are all added costs that have to be borne by the developers, which, if exceed the development charges from the buyers and investors, will then be transferred to the people who are buying property here. So, it’s clear that a major impact of the Covid-19 pandemic on construction is that these health emergencies significantly add to the cost of the overall development.
However, construction activities were amicably restored in Pakistan as per government guidelines. It was also one of the first sectors to resume activity. While the onus of reviving the economy, more or less, fell on the construction sector, it benefited the industry for the most part as real estate attracted renewed interest in investors and genuine buyers. But, as activity resumed after severe disruptions in the global supply chains, the cost of construction materials increased. The Pakistan Association of Large Steel Producers (PALSP) notified in December 2020 that the prices of steel are increasing globally, and a similar trend can be observed in Pakistan as well. But this isn’t affecting the construction sector at all, for now, at least, thanks to a plethora of measures the incumbent government has adopted to keep the industry and, consequently, the economy running.
The All Pakistan Cement Manufacturers Association (APCMA) recorded a 16 percent growth in cement dispatches during the first half of the current fiscal year (2020-21). The volume increased to 28.628 million tonnes from 24.751 million tonnes around the same time last year. Local dispatches have increased by 15.9 per cent in July-December 2020 to 23.61 million tonnes from 20.373 million tonnes in July-December 2019. This means that while the cost of cement has increased, so has the local production, all of which is being absorbed in the economy by way of construction. Therefore, this increased production will eventually offset the price imbalance, paving the way for further growth in this sector.
To ensure this smooth process, the government has also introduced a number of key measures.
What The Government Is Doing To Address The Impact Of The Covid-19 Pandemic On Construction
Prime Minister Imran Khan announced a comprehensive construction relief package in June 2020: an Amnesty Scheme for the construction sector, designed to sustain the economic growth of the industry. Key takeaways from the scheme include:
- Developers and builders of the low-cost housing projects across the country now enjoy a 90% tax exemption.
- Developers and builders have also been exempted from paying the withholding tax on the purchases made for different types of construction materials and other related services.
- Capital Gains Tax (CGT) of 5% to 20% has been abolished, and people who sell off their
- properties during this time, will not be required to pay any amount.
- Tax on sales of immovable properties has also been halved from 10% to 5%.
- Under FBR and Construction Relief Package 2021, investors will continue to enjoy tax exemptions by disclosing their sources of income.
- The deadline for the completion of the projects on board with the FBR tax amnesty scheme has also been extended till the end of 2021.
- The State Bank of Pakistan (SBP), and commercial banks will continue offering loans worth PKR 378 billion till December 2021 under a mortgage financing scheme.
- For low-cost houses’ construction, the government will also offer a subsidy with an allocated budget of PKR 30 billion. The government will also provide an additional grant of PKR 300,000 for each of the first 100,000 constructed houses.
To take advantage of these schemes, the Federal Ministry for Housing announced that Prime Minister Imran Khan would inaugurate the construction of 4,000 apartments under Naya Pakistan Housing Project in Lahore in February. As per PM 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).
In addition, Minister for Information and Broadcasting Shibli Faraz on Feb. 3 said banks have allocated PKR 378 billion – five percent of their total loan portfolio – for the low-cost housing scheme. This puts the NPHP at the forefront of all real estate related developments, while also providing low-cost housing. Meanwhile, development in Gwadar, set to become South East Asia’s new hub for trade, tourism and investment, is in full swing. Recently, a Memorandum of Understanding was signed for Gwadar Shipyard where ships will be built, repaired and training will also be provided to engineers working in the region, especially those associated with the China Pakistan Economic Corridor (CPEC).
This is a golden opportunity for investors and buyers to take an advantage of and get the most out of their investments. Developers also shouldn’t worry about the rising cost of construction, as these will come down eventually. This is a crucial year for the economic recovery of Pakistan and, as it appears, the government is doing the best it can to ensure all of its projects are in line with this aim.
This brings us to the end of our analysis of the impact of the Covid-19 pandemic on construction activities across Pakistan. If you want to know more about what the government plans on doing, you can write to us at blog@zameen.com, or keep checking Pakistan’s biggest real estate blog for more updates.
