Until and unless the prices of cement and steel are brought down, the overall construction cost will not come down, said a report prepared by Association of Builders and Developers (Abad) on impediments to the growth of housing.
The report noted that the cost of materials has increased manifold in the recent past, specially of two major components, namely cement and steel, which contribute to almost 50 percent of any housing or construction project.
The association noted that federal the government has given relief on only two items in the budget 2003-04 ie cement and cables, which comprise only 23 percent of the total cost of the material used in a housing unit, and no incentives whatsoever were given to other inputs like iron, steel, paints, tiles, marble and hardware, which are also essential for a housing unit.
The association estimated that cement consumes 30 percent of overall cost of any housing unit and this percentage increases in case of other construction activities.
The association pointed out that the prices of cement in November 2002 were ranging from Rs 170 to Rs 180 per bag, in December 2002 Rs 190 to Rs 231 per bag, in May 2003 prices were Rs 206-Rs 230 and just after the budget in June 2003 price of cement was Rs 210-Rs 230 per bag.
Abad noted that the benefit of reduction of excise duty on cement by 25 percent in the federal budget 2003-04 was not passed on to the consumers by cement manufacturers.
The association recommended that cement manufacturers should produce at least 80 percent or more of their installed capacity, lowering the basic price for calculation of import duty or itself lowering the duty on imports of cement, charging various taxes on cement producers on the basis of capacity of the manufacturing unit, regulating the price through control price using State Cement Corporation units and prohibiting them to be a part of anti-people cartels, and making Monopoly Control Authority a more vibrant and strong watchdog.
Abad said that along with cement, steel is the most important input during construction. In the last few months despite frantic efforts on the part of government the prices of this essential ingredient are on steep rise.
Steel consumes 24 percent overall cost of any housing unit and this percentage increases in case of other construction activities.
The prices of steel have increased to Rs 32,000 per ton from Rs 22,000 per ton in a couple of months due to sharp rise in prices of ships offered for breaking around the world. Now it is around 200 dollars per ton and there is increase in import duty from 16 percent to 21 percent.
The association noted that only 25 percent of total re-rolling mills get raw material, 25 percent are being provided billets directly by Pakistan Steel Mill, and rest 75 percent are obtaining billet at a premium from the privileged 25 percent mentioned above.
The association alleged that Pakistan Steel has increased its prices to show profitability at the expense of national economy whereas present rate of duty is 20 percent.
The association noted that Pakistan Steel is not working to its full capacity after BMR.
The association recommended that the government should take remedial measures to bring down steel prices.
The association also recommended that Pakistan Steel should directly supply billets to all re-rolling mills in the country. Government should make Pakistan Steel to work at its maximum capacity and duty on steel be lowered.
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