Prices of building materials in Pakistan are continuously soaring. Many developers have been forced to revise (read: increase) the cost of their projects, which is certainly not helping in putting end to the woes of the end-customers and investors alike. The unprecedented price hike is also causing unforeseeable delays in project deliveries and even abandonment of projects that were supposed to be launched soon.
To some extent, the jacked-up cost of construction materials in Pakistan—especially in Punjab —has been associated with the increase in demand and price of petroleum products and energy, which has led to a major spike in production charges. In this piece, we will review how increased prices of raw building materials in Pakistan are affecting the overall construction cost for the national construction sector in 2021.
BACKGROUND: THE ‘HISTORIC’ PACKAGE THAT SPURRED UNPRECEDENTED GROWTH IN THE CONSTRUCTION SECTOR IN PAKISTAN
In April 2020, Prime Minister Imran Khan gave industrial status to the construction sector and announced what was hailed as a ‘historic’ amnesty scheme to boost economic activity through the encouragement of the low-risk construction industry. Among other many favourable incentives of this scheme, was the fact that withholding tax was waived off for the construction services (plumbing, electrification, shuttering, and allied services etc) and building materials (except cement and steel).
The package attracted so much activity that the government extended it for another year. As of September 2021, as many as 2,125 construction projects worth PKR 493 billion were registered with the Federal Board of Revenue (FBR) under this scheme. The FBR-registered projects were given tax incentives and elimination from the income source probe for the investors, provided that these projects are completed and delivered in 2023.
However, as the global economy recovers from the mid-term impacts of the prevailing coronavirus situation, the rise in inflation is dampening the growth of economies worldwide. The construction sector is one of the most negatively-affected industries as a result of what can be aptly described as a tectonic shift in world economy. As per a United Kingdom (UK)-based BCIS Materials Cost Index, the construction materials cost in the UK has reached a 40-year high. The same trend is currently being witnessed in Pakistan, which is leading to delayed developments and budget-busting per square foot construction cost in Pakistan.
Following is a comparison between the current prices of five basic—and commonly-used—construction materials in Pakistan and the rates from last year, and if you continue reading, you might be able to better understand what your contractor is worried about:
Bricks are easily one of the oldest and most essential building materials. The cost of bricks mainly depends on the size and consistency of the material. The three main categories of bricks in Pakistan are:
- A Grade – Awwal Eent
- B Grade – Doem Eent (rough surface)
- C Grade – Khangar Eent
The standard size of these bricks are measured as Length x Width x Height = 9 x 4 x 3 Inches.
In November 2019, brick prices for ‘awwal category’ amounted to PKR 6,800 per 1,000 bricks, while those for the secondary category was PKR 5,300 per 1,000 bricks, as per the Punjab government’s fixed prices for bricks.
However, when we spoke to Mr Mobeen Satti (Co-founder & Owner of Pyramid Homes, DHA Lahore), we learned that the per 1,000-unit price of A-Grade bricks currently sits at PKR 14,000 – PKR 18,000, from PKR 10,000 – PKR 12,000 price recorded last year. This shows an average 50.1% increase in the prices of A-grade bricks in a single years. It should be mentioned that for the construction of a 1-kanal house, as many as 200,000 bricks are required (approximately), so the price increase becomes significant as the size of the project grows.
Steel prices have also been increasing and since it is both an important and already pricey construction material in Pakistan, the concern among developers regarding the rate of steel is not unfounded. The same source revealed that presently per kg Grade-60 steel bar prices has risen from PKR 110 to PKR 190, which amounts to over 70% price increase in the last year. The material has risen by PKR 40-50 in the last five months alone, and since it is required in tonnes, the increase in steel prices has spiked overall construction costs by millions.
As reported in the leading national daily, Dawn, the steel bar manufacturer ‘Amreli’ has increased its steel bar prices by PKR 3,000 to PKR 193,000-PKR 195,000 per tonne since November 15, 2021. Other manufacturers also raised the prices by PKR 3,000 to PKR 5,000. The same prices stood at PKR 110,000-PKR 113,000 per tonne in November 2020. The reasoning of manufacturers for this hike is linked to increased exchanged rates, shipping/import complications, shortage of scrape and fuel and electricity prices.
Aside from steel bars, the prices of other steel products including angles, girders, pipes and sheets are all increasing consistently due to increased production cost, high demand and limited manufacturing capacity.
Cement is another essential building material used in Pakistan. Like other essential construction materials, its prices are also soaring, leading to an increase in the overall cost of a project. In October 2021 alone, cement manufacturers increased the cement prices to PKR 25 per bag. The hike in cement prices has been associated with the jump in international coal prices. Compared to last year, the prices of cement have reached PKR 650-680 from PKR 500 of the last year, which is over a 35% price hike. The transportation cost of these bags has also increased from PKR 10-15 bags.
Of the two types of sand used in construction in Pakistan, Ravi and Chenab, the former is preferred over the latter. Prices for Ravi Sand in Punjab have doubled in prices in the last year, from PKR 7,500 per truck (as is the local measuring standard) to PKR 15,000. Prices for the second most-used type, Chenab sand (plaster), have also risen by PKR 10/sq ft.
There are two types of crush used in Punjab for construction: Sargodha and Margalla.
Sargodha Crush is available in regular and plant-based qualities. The prices for Sargodha Crush has increased by PKR 15 to PKR 10-80 per sq ft. Margalla Crush, at present, stands at PKR 90-95 sq ft after undergoing a nominal cost increase.
The above-mentioned materials are only associated with the development of grey structures in construction projects. The materials needed for finishing like aluminum, wood, glass, tile, sanitary and electrical fittings have also increased considerably given the rupee-dollar exchange rate and amplified import tariffs.
When talking about the current spike in construction costs, Mr Satti of Pyramid Homes explained that the rise in costs has led to PKR 300 hike in per square foot construction cost in Pakistan for all real estate projects as 2021 approaches its end, which translates into millions when it comes to high-rise and other large-scale real estate developments in the pipeline.
Developers have also expressed their concerns about how these fluctuations are limiting their capacity to deliver projects. Some contractors are experiencing crippling losses, while others are obligated to charge an additional sum to end-consumers, which is contributing to overall economic inflation. Meanwhile, the government’s aim to gap the housing shortage in Pakistan seems nowhere close to actualization. In times when it’s becoming harder and harder for the upper-middle class to buy or build a home, the chances of the same for low-income segments, at present, appear to be non-existent. Unless drastic measures to improve the inflation rate are taken by the government, like another extension in the amnesty scheme, the construction sector is potentially looking at another stand-still period.