Pakistan’s construction industry faces its worst slump in years due to the absence of buyers, escalating prices of the raw materials and developers’ inability to generate finances and credit-lines for their projects, a senior industry official said on Monday.
The uncertainty surrounding the economy discourages investment and a lot of apartment buildings remain vacant in the absence of buyers, said Aftab Siddiqui, the founder and Managing Director of Paragon Constructors.
“In 2008, we didn’t even have the time to talk to the people who wanted our services,” he said in an interview. “And now there are delays everywhere. The sponsors don’t have the money to complete the projects.”
Paragon, which in the last two decades has emerged as a leading construction company, has signed contracts for grand projects such as Bagh-e-Quaid-e-Azam’s renovation, the 27-storey Sofitel Towers, and the luxury apartments at Emaar’s Crescent Bay. Siddiqui did not comment on the specific projects, but said that the construction of most of these face delays because of developers’ inability to mobilise funds.
“The risk factor has gone up. Till two years back, price of steel and cement were relatively stable. But now we are witnessing 12-15 percent price escalation each year,” he said.
Besides developers, the construction companies have also been beset with their own financial woes. “Banks are reluctant to lend money to constructors. It’s not easy to establish credit lines, especially for the small companies,” said Siddiqui.
For every large private or public sector project, the construction contractors have to make upfront payments as collateral for finishing the work on time, he said. “Normally, these are in the shape of bank guarantees. Imagine a billion-rupee project, which requires a 22 percent bank guarantee. That would mean Rs220 million. It is a big amount for anyone to arrange.”
The uncertainty surrounding the economy discourages investment and a lot of apartment buildings remain vacant in the absence of buyers, said Aftab Siddiqui, the founder and Managing Director of Paragon Constructors.
“In 2008, we didn’t even have the time to talk to the people who wanted our services,” he said in an interview. “And now there are delays everywhere. The sponsors don’t have the money to complete the projects.”
Paragon, which in the last two decades has emerged as a leading construction company, has signed contracts for grand projects such as Bagh-e-Quaid-e-Azam’s renovation, the 27-storey Sofitel Towers, and the luxury apartments at Emaar’s Crescent Bay. Siddiqui did not comment on the specific projects, but said that the construction of most of these face delays because of developers’ inability to mobilise funds.
“The risk factor has gone up. Till two years back, price of steel and cement were relatively stable. But now we are witnessing 12-15 percent price escalation each year,” he said.
Besides developers, the construction companies have also been beset with their own financial woes. “Banks are reluctant to lend money to constructors. It’s not easy to establish credit lines, especially for the small companies,” said Siddiqui.
For every large private or public sector project, the construction contractors have to make upfront payments as collateral for finishing the work on time, he said. “Normally, these are in the shape of bank guarantees. Imagine a billion-rupee project, which requires a 22 percent bank guarantee. That would mean Rs220 million. It is a big amount for anyone to arrange.”
Source:
Saad HasanTuesday, April 05, 2011
The News
