Since the outbreak of coronavirus worldwide was around December 2019, the whole world is at a state of standstill. People lost their jobs; businessmen saw huge losses in their business during the Pandemic. In Pakistan, around March 2020 government locked down shopping malls, educational institutes, small and large businesses. There was no movement at all, and there was no circulation of money in the already ill economy of Pakistan. People were confined into their houses. Almost each and every sector of the economy suffered losses and setbacks, whether its small industry or large-scale industry, of course also the construction industry. Like other industries, the construction industry also faced huge losses and setbacks that affected millions of stakeholders across the globe and Pakistan. Still, we are in the middle of coronavirus crises, a health emergency, and an economic emergency that is affecting the world’s economy. In this article, we will be analyzing the impacts of coronavirus, how to recover from it, and the actions of the sitting government.
Soon after the announcement of lockdown countrywide by Pakistan’s government, all the under-construction projects came to a halt, labor and contractors that went one evening after work never came back for at least 5 to 6 months because of lockdown. Because of uncertainty and fear of the Pandemic that was killing people, it affected all of the economic sectors. Under construction projects are delayed for months. Where under construction project delayed, there was also no chance of new construction projects countrywide. Also, all processes like balloting and procession of plots promised by different housing societies can create new construction opportunities postponed that affected the construction industry. The construction industry is a labor-intensive industry in which a large portion of workers are on daily wages mostly, the construction industry is attached to many other industries, and that industries got affected too because it resources raw materials of different kinds from nails to the large frame of steel, cement, paint and many others you just name it. So, the impact was severe due to COVID-19 on construction activities.
Under construction projects where raw materials (steel, cement, bricks) were dispatched, they suffered the most and increased cost because raw materials get damaged if not cared for properly. When cement is exposed to moisture, it becomes harder and unusable. Glass is extremely fragile and can break easily, the same way steel can get rust and break. Buildings that were half completed are more prone to damages if not cared for and covered properly. As there was no activity so workers left big cities for their hometowns which also delayed construction work further, and it also increases overall cost because many developers paid in advance rather than on a daily basis, after shutdown these payments that the developer already paid is now extra cost because they have to hire and pay workers again once construction starts. Once the world sets into a normal state, there will be a sudden demand for raw materials and distinctive patterns of purchasing. These purchasing patterns and sudden demand will create a supply and demand gap, ultimately increasing construction costs and delay the duration of construction. All these extra costs and challenges will definitely increase construction costs. Buyers who will buy property in the near future have to pay extra as they have to before the global crisis in a coronavirus form.
Recently, fortunately, which was also in need of time, the construction industry and activities resume after months of closure, and the construction industry was one of the initial sectors in which we have seen resumption after closure. As the construction industry is attached with many other sectors as well and it contributes economy of the country, so many other sectors that were associated with construction activities also revives. We have seen an increase in demand for raw materials from steel nails to cement to larger infrastructure. There is also an increase in raw materials prices because of supply and demand gap, which shows that construction activities revive and a concern as it will increase the construction cost of projects. Steel and cement prices increased recently, especially steel prices increate at least 40 to 50 dollars to a ton. Steel producers of Pakistan announce an increase in steel prices with the argument that it is a worldwide phenomenon and steel prices are increasing everywhere because of demand and supply. According to Pakistan’s cement manufacturing association, there is an almost 16 percent increase in demand for cement after the first fiscal year of the 20-21 budget. In terms of volumes, the demand for cement increased from 24 million tons to 29 million tons which is a positive sign that construction activities are reviving at a constant rate which will increase opportunities in other industries as well that are associated with the construction industry of Pakistan.
Government’s actions to address construction industry impact because of Pandemic:
Discussing the construction industry For the first time, the government grants the construction sector the industry’s status, which means that on import of construction-related machinery and raw materials, developers or contractors will get the same benefits as any other industry can get. If we describe it in a layman’s language that it will decrease overall construction cost. At the end of 2020 government announced a relief package for especially the construction industry of Pakistan to increase construction activities in the country and to attract investors. The government announced an exemption of withholding tax on construction industries except for the cement and steel industry. The steel industry import most of the material from other countries; the cement industry is a big industry and already generating revenues, so except for these two industries, all others are exempted from withholding tax. Apart from that government also lift sales tax on services and imposed a fixed tax which means that before this relief package, you have to pay tax on services on building a home through a contractor or even if you are buying an already built home or property but now sale tax is fixed which is 50 rupees per sqft. Key points of this scheme are listed below:
- Development of housing projects, especially smaller projects, will cost less as they will enjoy almost 90 percent tax exemption.
- Contractors and developers are exempted from withholding tax on purchases of raw materials needed in construction and different services except for the cement and steel industry. This will overall reduce the construction cost of the project.
- CGT capital gain tax is also have been lifted, and sellers do not have to pay if they trade in this year. In Pakistan, we have two types of taxation on each sale or purchase of property, provincial tax, and federal tax. In provincial tax, we have capital gain tax payable by the seller and capital value tax payable by the buyer. So, after the amnesty scheme, you do not have to pay capital gain tax, which will benefit the buyer. But keep in mind that it will not be applicable to the trading of plots.
- Tax is now half from 10 to 5 percent on every sale or purchase of the immovable property.
- On disclosing the source of income under FBR and government package, you can continue to avail of tax exemptions.
- Duration to avail of these tax exemptions is also extended till the end of 2021.
- Banks in the direction of the state of bank Pakistan will provide loans to construct homes on lower interest rates till the end of 2021.
- Under this scheme, the government is keen to offer subsidies with a budget of 30 billion rupees, especially for houses’ small construction. The government will also offer additional grants.
- Investors investing in the real estate and construction industry will not question their wealth and whether it is black money or white money during this financial year, with one condition that you cannot trade in cash which means that one should have to open a bank account and must do the transaction through cross cheque. This will give benefit investors, workers, and materials producers. Investors will invest their undeclared money in the construction industry without fear of being questioned, which will increase construction activities in the country. With the increase of construction activities, opportunities for workers to get work will increase along with it. Also, all businesses related to the construction industry like the cement industry, steel industry, tiles manufacturers, and many others will also expand with the expansion of construction activities throughout the country.
- The government has built a construction industry development board that will monitor all aspects of the construction industry and do reforms to increase industry activities and increase employment and businesses associated with the construction industry.
- There is another good news for you, especially if you are buying or selling the house for the first time. There will be no tax on a person who is buying or selling the house for the first time in life. It is beneficial for a person who is dreaming of buying his house and living there with his or her family.
Although this relief package of government regarding the construction industry is very attractive for many investors in the market but for all these benefits and intention of the government to be in place, the government have to clear concerns that are going through the minds of investors related to continuity and implementation of this scheme.