Construction sector to add 5pc to GDP: experts

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Economic Updates - Pak Major Financial News

Construction industry experts say that facilitating the construction sector will not only increase government taxes but will also add five percent to Pakistan’s gross domestic product (GDP) in addition to reducing the shortfall of housing units.

Chairman Zaamin Developers Akber Sheikh said that according to the population census held in 1998, housing stock in Pakistan was 19.21 million, of which, 7.18 million units were in urban and 12.03 million in rural region.

He said occupancy rate was 3.3 people per room or 6.6 people per house, which increased in 2010 to eight persons per house. Internationally, it is two persons per room or four persons per house.

He said per room occupancy rate is increasing rapidly in Pakistan, as few number of houses are built every year in disproportion to growth in population.

“With population of the country rising at a rate of four million per annum, there is a need of 650,000 units annually; at occupancy rate of six persons per unit,” he revealed. However, we are adding only 350,000 units per year, leaving a shortfall of 300,000 per annum, he said.

Shiekh, who is also the chairman of Builders Association of Pakistan, said official statistics indicate that 50 percent of the urban population lives in katchi abadis (shanty towns).

“We need 50,000 additional houses per year in Lahore alone where migration from all rural centers of Punjab and even urban regions of Sindh has increased,” he added. He said the recurring urban residential requirement could be met with prudent interventions from both provincial and federal governments.

Chairman Lake City Holdings Gohar Ejaz said that whatever housing activity is generated in the country, the government gets 25 percent of the construction cost as taxes. He said there is 16 percent sales tax on all construction and finishing materials, which include cement, bricks, paints, electrical wiring, sanitary ware, fans, lightings, and other finishing accessories.

He said mainly lower and middle income groups face housing shortage. He said the government should facilitate private sector developers on commercially sustainable basis for constructing low cost houses ranging from Rs1.5 million to two million rupees in the form of high rise apartments.

He said these builders pay six percent withholding tax when they sell their houses or apartments, besides paying two percent capital value tax and stamp duty. He said thus the cumulative taxes government gets on construction of a house is more than 25 percent of the total cost.

The government should ensure subsidised house building loan to a buyer of small and medium house and apartment, he said, adding a five percent subsidy on mark-up will facilitate aspirants of low-end houses to acquire a house.

He said government should ensure financing of up to 40 percent of the cost of the house. Gohar said this gesture alone will give a boost to construction activities substantially. He said five percent subsidy on average Rs3.5 million house means an interest subsidy of Rs50,000 per annum.

He said additional construction of 300,000 houses will lead to Rs1,050 billion economic activities. He said after deducting 33 percent land cost, the construction activity will be to the tune of Rs750 billion.

He said the government will get 25 percent of it as tax, which comes to Rs187.5 billion. He said by parting with Rs50,000 markup subsidy per house (Rs15 billion on 300,000 units) the government will get additional Rs172.5 billion as tax plus recurring property tax and wealth tax. It will boost GDP growth by over three percent, he added.

Shiekh said without doubting the sincerity of the public sector housing projects like Mera Ghar scheme by Nawaz Sharif, million house schemes by Gilani or Ashiana scheme by Shahbaz, it is very clear that they did not deliver as neither the private sector was included nor the commercial sustainability of these projects was ensured.

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