Builders and developers want the government to “strictly” control prices of cement and steel because it is affecting the construction industry, and “hurting the progress” of Naya Pakistan Housing Program (NPHP). While the government has—in many instances—also expressed concern over inflation in these commodity prices, there is nothing that should be polarizing about this subject. The government should not be putting any price controls on these goods. Period!
Prices have certainly catapulted for construction materials. Cement prices—particularly in the north zone—have risen very confidently over the past six months, inching closer and closer to prices in the southern markets, which have traditionally been higher than prices up north. Strong demand from infrastructure and hydro-power projects has enabled cement companies to raise prices.
Cost concerns have also reared their ugly head. Coal prices in the global markets have run wild. South African coal has increased 169 percent in value in the past 15 months which is an unparalleled surge in recent history. Rising costs have to be passed on to consumers wherever possible for businesses to keep margins at desired levels. Certainly, if demand in the domestic market for cement goes down, prices will begin to eventually decline too.
Steel prices are also rising. According to the Pakistan Bureau of Statistics (PBS), whole sale prices for steel bars and sheets have increased by 43 percent in Aug-21 year-on-year and by 6 percent in the last month alone. Steel is certainly a protected industry where custom duties, regulatory duties and anti-dumping duties on imported steel give the necessary buffer for steel manufacturers on price competitiveness. On the other hand, international scrap prices have been pushing the necessary buttons for rebar manufacturers (using scrap to make long-steel products) to hike up prices in the domestic market.
One could make an argument to slash duties and allow an unfettered influx of imports into the country of these commodities to give local manufacturers the necessary competition. Perhaps, it would be cheaper for builders to use imported steel or cement than to procure it locally. And while that will have implications for local jobs and the current account, it is a debate that could intellectually occur. But asking the government to step in and control prices is entirely unreasonable.
What the builders aren’t talking about are the real estate prices that have gone out of control soon after the government’s construction amnesty scheme came into effect and which are showing no signs of reprieve. In fact, the entire purpose of NPHP to promote affordable housing for the middle and low-income segments where supply is either not sufficient or not satisfactory has been defeated by the speculative surge in land prices. There are a number of projects announced under the NPHP that are “affordable” but none of them are being introduced by private sector developers, and if they are dedicatedly launching affordable projects, these same builders are certainly not marketing them. It is, in fact, the provincial housing authorities that are taking the lead in NPHP. Where are the beneficiaries of the amnesty?
Instead of going after materials manufacturers, the government needs to ask builders why they are shying away from a housing market that is thirsty for affordable housing, especially given the incentives being offered under both the construction amnesty and the NPHP that should ideally allow middle-class home buyers to afford good quality home-ownership?
How does the government hope to meet the housing gap in the market if builders are just providing horizontal sprawls to the demographics with ample supply already, long before the amnesty came in? Let’s also not forget that a dominant number of projects under the construction amnesty are those that were already underway which does absolutely nothing for new housing supply. There are deep-rooted concerns about money being laundered through the amnesty scheme (read Ali Khizar’s: Real Estate amnesty: elite capture?, Sep 12, 2021).
It was long suspected and highlighted in this space why the construction amnesty was designed to fail delivering on its purpose. Ideally, government incentives should have triggered construction supply of high-rise apartments that were more affordable and reliable to own and rent, but while that hasn’t happened, there are ad nauseum cries on materials price inflation. Let’s not try to fix that which does not need fixing.