{"id":81578,"date":"2020-02-13T12:14:24","date_gmt":"2020-02-13T12:14:24","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=81578"},"modified":"2020-02-13T12:14:57","modified_gmt":"2020-02-13T12:14:57","slug":"naya-pakistan-housing-construction-costs","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/naya-pakistan-housing-construction-costs.html","title":{"rendered":"Naya Pakistan Housing and Construction Costs \u2013 Part II"},"content":{"rendered":"\n

Before we go into\nunderstanding the extent of affordability of PM Imran Khan\u2019s Naya Pakistan\nHousing Program (NPHP), and the need of a range of fiscal and non-fiscal\npolicies to attain this almost elusive affordability, it is important to\nexamine the movement of land prices in Pakistan along with construction material\ncosts. <\/p>\n\n\n\n

Since together land\nand grey construction make up for majority of the total cost of any property, accounting\nfor the way the housing asset is priced along with builders\u2019 commercial\nviability will determine the steps the government needs to take to achieve\naffordability. <\/p>\n\n\n\n

Earlier, we established that the price index for construction costs grew by 14 percent between Aug-18 and Aug-19\u2014this is against a CPI growth of 12 percent. By Nov-19, these figures reached 16 percent and 15 percent respectively. This substantially raises the potential construction cost for the entirety of the NPHP<\/a> 5-million housing program, estimated earlier by the government. <\/p>\n\n\n\n

\"Data
The value of construction items along with plot prices<\/figcaption><\/figure>\n\n\n\n

We can analyze the\ntrajectory of prices over a longer span of time as well. The index for\nconstruction input items has grown by 57 percent from Jan-13 to Aug-19, against\na CPI growth of only 46 percent. Evidently, prices for construction items tend\nto stay ahead of other commodities and overall inflation in the country. <\/p>\n\n\n\n

Similarly, if we\nlook at land plot prices (as compiled by Zameen.com), between Jan-13 and\nAug-19, plot prices have risen by 102 percent which is close to double of the\nconstruction items inflation. In layman\u2019s terms, this simply means, a house\nthat cost Rs1 million in 2013 would potentially cost Rs1.84 million now, if we\nconsider that land and construction costs have a 60:40 ratio. However, this\nmight be an underestimation. <\/p>\n\n\n\n

A recent paper by\nTabadlab, a think tank based in Islamabad used the price indices between 2012\nand 2018, and found that \u201ca housing unit that cost Rs 6.6 million in 2018 would\nhave cost around Rs 3.7 million in 2012\u201d. The authors arrived at the 2012 costs\nby deflating the current construction costs using the price index of\ncommodities including cement, steel and bricks. The authors also highlighted\nthat \u201ca massive 83% of the increase in cost of a housing unit was attributable\nto land. Land accounted for 57% of the housing cost in 2012 compared to 70% in\n2018\u201d. <\/p>\n\n\n\n

Of course, all land\nwas not created equal. The geographic location, zoning regulations, quality and\naccess to infrastructure and public services all go into how any land is\npriced. Then there is also speculative interest.  <\/p>\n\n\n\n

Real estate is used as\nan investment instrument across the country. Land plot prices have skyrocketed because\nof the speculations of businesses, builders and individual investors alike. Since\nthere is virtually no cost for holding a property, investors buy and sell land\nto earn a substantial return. Builders also conduct a cost-benefit analysis to\ndetermine if holding the land would be more profitable (by matching expected\nreturns on investment) than spending on construction and building up the\nproperty.<\/p>\n\n\n\n

This soaring land\nprices coupled with inflationary pressures that seem to impact the cost of\nconstruction and building materials disproportionately compared to other\ncommodities, pose several integral questions. Can builders be expected to\ndevelop low-cost housing at market-based trade-able land and get their expected\nreturn? The answer is clearly no. Then how is the government choosing the land\nand at what price will it be sold for NPHP projects. Who bears the loss? If\nland is located on the outskirts, how will these new areas be inhabited, and\nwho will take on the burden of developing and providing public infrastructure\nand basic amenities?<\/p>\n\n\n\n

Less importantly, if a project is constructed even within a year, who will bear the rising cost of construction<\/a>? The current announced subsidy by the government as well as the sales tax exemption\u2014at this point\u2014are a drop in the bucket.<\/p>\n","protected":false},"excerpt":{"rendered":"

Before we go into understanding the extent of affordability of PM Imran Khan\u2019s Naya Pakistan Housing Program (NPHP), and the need of a range of fiscal and non-fiscal policies to attain this almost elusive affordability, it is important to examine the movement of land prices in Pakistan along with construction material costs. Since together land and grey construction make up for majority of the total cost of any property, accounting for the way the housing asset is priced along with builders\u2019 commercial viability will determine the steps the government needs to take to achieve affordability. Earlier, we established that the price index for construction costs grew by 14 percent between Aug-18 and Aug-19\u2014this is against a CPI growth of 12 percent. By Nov-19, these figures reached 16 percent and 15 percent respectively. This substantially raises the potential construction cost for the entirety of the NPHP 5-million housing program, estimated earlier by the government. We can analyze the trajectory of prices over a longer span of time as well. The index for construction input items has grown by 57 percent from Jan-13 to Aug-19, against a CPI growth of only 46 percent. Evidently, prices for construction items tend to stay ahead…<\/p>\n","protected":false},"author":97,"featured_media":81608,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[29],"tags":[43587,42935,53447,43961,10649,26741],"persona":[32418,32409],"class_list":{"0":"post-81578","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-construction","8":"tag-construction-and-development","9":"tag-construction-cost","10":"tag-housing-construction-costs-in-pakistan","11":"tag-lob","12":"tag-naya-pakistan-housing-program","13":"tag-naya-pakistan-housing-project","14":"persona-buying-and-selling-trends","15":"persona-constructiondevelopments","16":"cat-29-id"},"acf":[],"yoast_head":"\nAnalyzing the Trend of Increasing Housing Construction Costs in Pakistan | Zameen Research<\/title>\n<meta name=\"description\" content=\"Gauging Housing 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