Economy’s Impact on Pakistan’s Construction Industry

Out of Pakistan’s total population, 37 % resides in urban areas while about 64 % resides in rural areas. There is a continuous growing demand for housing in both categories while urban areas, specifically Karachi; the commerce heart of the country, require extensive investment in public infrastructure. With the recent economic fluctuations owing to political upheavals, climate change and the pandemic how capable is Pakistan’s construction industry in achieving these growing infrastructural demands? An assessment of raw material costs and the current government’s infrastructural & real estate policies provides a starting point with which to analyze the industry’s future capacity and potentiality.

There are over 50 construction allied industries which drive activity within the construction sector. Prices of the products of these allied industries greatly determine the possibility of construction activity within the country. To begin with, let’s assess the prices of the most fundamental construction raw material; cement and its impact on the wider construction-related activities and processes within the country. Cement sales have been declining since the mid of last year with total cement dispatches at 4.336 million tonnes in August 2021 compared to 3.296 million tonnes this year in 2022. [1] Therefore, there has been a reduction in demand which has been driven by the currency devaluation; there has been a decline in people’s overall buying power. According to the All Pakistan Cement Manufacturers association APCMA, one of the main reasons behind the increase of cement prices is transportation costs due to the increase in prices of petroleum products and diesel nationally and internationally. [2] APCMA also cited the rise in the cost of electricity as adversely impacting the manufacture of cement.

The situation is as dire when we look at other construction-allied raw material industries. The price of steel has also been considerably rising due to a rise in the cost of steel scrap globally and the devaluation of the Pakistani rupee. [3] When the cost of the raw material itself starts to rapidly increase and project bill of quantities start varying with greater intensities, investors become demoralized and apprehensive and the industry as a whole starts facing decline which could prove to greatly impact Pakistan’s GDP. This can only be offset by an overall improvement in the performance of the rupee eventually but there is a need for the government to perhaps subsidize certain construction allied industries to balance the cost of these raw materials. On that front, there is no policy currently which shows promise.

It is necessary to assess whether government policies have been initiated to therefore encourage investment into the construction industry in an environment where people face serious apprehensions about their capital investments. Some recent government policies however show that the government has in fact created a harsher climate for private investment in some regards which has naturally resulted in the slowdown of the wider construction sector according to analysts. However, this may not affect all categories of buildings as we will discuss in a moment, nonetheless it has created apprehension in the minds of investors. One such policy is the increasing of taxes imposed by the government on the real estate sector for the 2022-2023 budget year. [4] According to the President of the Islamabad Chamber of Commerce and Industry Muhammad Shakeel Munir this will undoubtedly affect the construction industry adversely in the near future and create more unemployment.

The new government has proposed that the owners of more than one immovable property more than Rs. 25 million in value will be deemed to have received the rent equal to 5% of the fair market value of the property and should pay tax at the rate of 1% of the fair market value. They have also set in place a 15% tax on capital gains of immovable property for one year holding periods which has been seen as too high. Fortunately however, this has been analyzed as a tax on mostly unproductive assets such as plots and files therefore it may not have a major impact on house or building construction. The impact will be felt by individuals with plots as they don’t have any rental income which will therefore become liabilities. [5]  An important takeaway from the current 2022-2023 financial budget with regards to real estate is that the FBR has stated that the reason to impose this new tax on real estate and in particular unproductive assets like plots is to encourage people to invest in apartments. There is a clear message here from the government to pursue vertical growth which is something construction related professionals and investors as well as architects and interior designers need to take note of. Apartments have been exempted from CGT and so will undoubtedly attract more investment and acceleration. This is an avenue that construction companies can really look to be a contributing part of with substantial returns and opportunities.

According to a study released by Pakistan Credit Rating Agency (PACRA) the construction sector is estimated to expand by an astounding 92 % in seven years (from 2021 to 2029.) [6]However, what we saw in 2021 which was an accelerated growth in the construction sector and its resulting contribution to the GDP was achieved through increased government concessions and aggressive private sector investment under the previous government. This is an environment that is needed to drive growth within the industry. What is needed to achieve this forecasted growth in the 7 years that has now been impacted by the floods is more of the subsidies promised and provided in the last year. While apartments and vertical growth is currently incentivized, the costs of materials, finishing and fixtures is still high which has slowed down construction activity. While the economy is recovering and prices of raw materials stabilize, it is worthwhile for construction professionals to explore the avenues of vertical growth, social housing of which there is a massive backlog and cost-effective building design and construction and its related innovations.  Bylaws and standards that should be incorporated as part of an effort to encourage vertical growth:

Without appropriate measures to do with laws and standards in place within the construction industry, the desired growth within high-rise building construction will not be possible. With the current adverse effects felt by the construction industry as a result of the inflation and unstable economy, it is crucial that the architectural industry moves towards sustainable building and planning practices. Some architectural and engineering features to keep in mind are:

  • Ducts and open spaces to be allowed in building – Plumbing, Air-Conditioning outers & Electrical service ducts should be made compulsory: In order to ensure healthy air quality and ventilation within dense vertical centers of the city, atriums and air ducts should be made a mandatory part of vertical planning.

Purpose: Good Ventilation, Aesthetics of elevation and easy maintenance

  • Air-Conditioning water recycling for vertical, roof and other vegetation should be done.

Purpose: Recycling, saving water

  • Each area/Vicinity should have a theme/Architectural language to follow; what aesthetics and architectural features should high-rises in Pakistan possess?
  • Semi-detached planning should be made mandatory for buildings very close to each other.

Purpose: Less maintenance, low heating and cooling cost

  • Fire and wind emergency exits and slides (ropes or otherwise) should be made necessary.

Purpose: Safety – side alleys to be utilized in planning

  • Leave area on front for ground floor landing and parking – Currently unclear in Bye-laws.

Purpose: To solve traffic and parking issues

  • Vertical Vegetation
    Bye-Laws to include the number of trees/shrubs to be planted on rooftops and side-alleys together with commercial building facades.
  • Seismic Review
    Infrastructure to be able to sustain 8 to 9.5 Richter scale Earthquake.
  • Water conservation and sewerage: Low-flow plumbing fixtures for example aerators for faucets, reduced-flow shower heads, and high-efficiency toilet and urinal flush valves.

Substantial amounts of water compared to conventional fixtures can be saved this way. Grey water recycling: In commercial settings where bath, dish, and laundry water is present—except for toilet waste —grey water can provide a reasonable payback of investment. Grey water treatments comprises solids separation, biological treatment, and ultraviolet disinfection. Commercial rainwater harvesting systems; Collecting rainwater through public and commercial buildings in cities is viable option for owners and designers where a building with a large roof area also requires a high demand for non-potable water.

[1] Ghulam Abbas,, September 2022

[2] “Inflation key factor for price hike in construction sector, NA told”, Dawn, April 2022

[3] Inflation key factor for price hike in construction sector, NA told”, Dawn, April 2022

[4] “Govt imposes Rs440b new taxes with focus on real estate”, Pakistan Today, June 2022

[5] “Year 2022-23 Budget taxes and impact on real estate sector of Pakistan”,, June 2022

[6] “Construction sector likely to grow 92 percent in seven years”, The News, April 2022