Role of construction industry in economy Presented to: Association of Builders and Developers, Pakistan January 14th, 2011 By: Zaigham Mahmood Rizvi Secretary General Asia Pacific Union for Housing Finance Advisor to Stat Bank of Pakistan (Housing & Infrastructure)

Players of Construction sectors Developers/contractors Designers Construction material Industry (CMI) Labor/employment Financial Institutions/Banks Capital Market (REITs, MBS, Sukuk etc.) Regulatory agencies/Fiscal Authorities Trade Associations Above all, the Federal and Provincial Governments

Construction sectors covers the following: Real Estate Residential real estate (retail & wholesale) Commercial real estate (office, markets etc) Industrial Infrastructure This paper focuses on the role of residential real estate in the economy.

Contribution to Construction Material Industries (CMIs) In developed world the real estate sector contributes to the growth and development of 71 CMIs. Contribution to GDP is 7-10%. In developing world, its contribution spreads over about 42 CMIs. Contribution to GDP is 3- 6%. The main industries are steel, cement, wood, electrical, ceramics etc.

Role of construction industries in select countries India Thailand UK China Pakistan

Construction Industry - INDIA India is currently the second fastest growing economy in the world. It is playing a vital role in overall economic growth, growing at 20% pa over past five years, and contribution 8% to GDP. It is keeping pace with technological advancements and innovations in construction techniques and materials. Emphasis on project design and management.

India continued Emphasis on façade design in terms of Energy Efficiency, Sustainability, Strength, increased acoustics, alternate energy etc. Developer Associations: CREDAI: (It is the apex body having membership of 200 associations and 6,000 developers) BAI: Builders Association of India (It is association of designers, architectures with of direct membership 13,000 contractors and indirect membership of 50,000 through various regional Associations affiliated to BAI) Construction Industry Development Council of India

India continued Construction sector is second largest after agriculture. Re.1 invested in construction causes Re. 0.8 contribution to GDP (Agriculture 0.2 and manufacturing 0.14). Investment in construction sector causes 4.7 times increase in income and 7.8 times in employment as compared to agriculture and manufacturing. Investment of Rs.10 million in construction generates employments of 22,000 unskilled man-days, 23,000 semi- skilled man-days and 9,000 technical man-days. 25 large scale developers are engaged in low cost housing projects all over India. For example, Tata is also in construction business of low cost housing. It has its own housing finance institution.

Construction Industry – INDIA vs. CHINA Two most populous countries in the world, representing one out of every three persons on the planet. China has invested heavily in modernizing its physical infrastructure (India is way behind, but in the race). Construction sector value in 2007- China: $ 161 bn (5.6% of GDP) India: $ 65 bn (6.9% of GDP) USA: $ 815 bn (9.0% of GDP) USA info source: http://www.plunkettresearch.com/real-estate-construction-market-research/industry-statistics :: Source of GDP ratio: http://www.fgould.com/media/files/ici_2008_janfeb.pdf

Construction Industry - UK Construction sector is 10% of country’s GDP, employs 1.5 million people. Average new homes 150,000 per year at average price £100,000 (£1.5 billion market). Share in construction sector- Housing 38% Infrastructure 9% Industrial 5% Commercial 18% CMI etc 30%

Construction industry and challenges of low cost housing India faces an urban housing shortage of 27 million units, nearly all in low income category. Pakistan faces an urban housing shortage of 3-4 million units, again nearly all in low income category. Afghanistan: nearly 90% of population is a candidate for housing micro finance. Low income housing is a challenge to the developer industry, and needs to be responded in a professional and commercially sustainable way.

Issues we know, answer we need Generally Political Sloganizm “Housing for all”, “Slums Free Cities”, “Maang Raha hai har Insaan-Roti, Kapra, aur Makan”, and so on…… In some countries delivery is SOME, and in most it is NONE. Each country facing a common issue of “shelter less poor”, with ever increasing backlog Regional successful models are to be shared and INDIGENIZED

South Asia: Population Trends   Total Populati on (mn) 2007 Population Growth % 2007-2015 Urban Populatio n (mn) 2007 Urban % of Total Urbanization GDP Growth Rate % 2000-07 India Pakistan Sri Lanka Thailand Mongolia Indonesia Bangladesh 1,125 162 20 64 26 225 158 1.3 2.1 0.3 0.5 1.0 1.6 329 58 3 21 1.5 113 42 29 36 15 33 57 50 27 2.5 3.3 0.2 4.3 3.7 7.8 5.6 5.3 7.5 5.1 5.7

Slums prevalence in SA Afghanistan: 80 percent of the Kabul population (2.44 million) live in slums, damaged or destroyed housing Bangladesh: 2,100 slums; more than 2 million people in Dhaka live either in slums or are without any proper shelter India: 52,000 slums holding 8 million urban households, representing about 14 percent of the total urban population. Pakistan: Karachi alone has between 600-800 slums, sheltering about 7.6 million (or 1 million households) out of the total city population of 15.1 million people Sri Lanka: A considerable share of the population of Sri Lanka lives in plantations, slums and shanties. Mongolia: 51% of the population is residing in temporary ” ger” dwellings Indonesia: 17.2 million families live in approximately 10,000 slum areas Answer: Slums Rehabilitations, Slums Upgradation,Low-Cost Housing, and Housing Microfinance projects on a manufacturing scale.

Urbanization Explosion World population is expected to reach between 7.9-10.9 billion by 2050. By 2030 nearly 60% of the world population will be urban, and half of that will be urban poor, living in poor habitat and in slums. Urban growth rates are highest in the developing world, which absorbs an average of 5 million new urban residents every month and is responsible for 95 per cent of the world’s urban population growth. Factors contributing to urban migration are: greater economic growth, rising income levels, employment opportunities in the cities, occupational shift from agriculture to manufacturing and services, and changing attitudes towards consumption and life style. Changing family culture and shrinking household size. Slum population in India has increased from 26 million units in 1981 to 61.8 million units in 2001

Population explosion in cities In 1950, about 232 million people lived in urban areas, which represented about 17% of Asia’s total population. In 2005, Asia’s urban population had risen to 1.6 billion people, or about 40% of the region’s total population. Half of Asia’s total population will live in urban areas by the year 2025. This means that by 2030, one out of every two urban residents in the world will be an Asian. In India, as per census 2001, the total housing stock was 249 million units out of which 29% (72 million) were in urban areas. India today faces an Urban housing shortage of 27 million units. Pakistan faces an estimated 3-4 million urban housing shortage. Nearly entire Urban Housing Shortage is in Economically Weaker Sections of society.

Pakistan: Some statistics Population 160-170 million Population: 2/3rd rural, 1/3rd urban Major metropolitans: Karachi, Lahore, Rawalpindi/Islamabad, Peshawar, Hyderabad and Faisalabad facing high rate of urbanization Karachi population 16-17 million, growing @ of 7-8% Nearly half of Karachi’s population is in squatter settlements (600-800 squatter settlements) Karachi only needs 100,000 new housing units per year to meet natural growth, cover backlog & urbanization pressure.

Housing Continuum in Pakistan Housing Finance Player Market Segment Income Distribution in % Rs 1 Lac & above. Commercial Banks High - High 1 % Rs 5.0 & above 0.075 Rs 2.5 to Rs 5.0 High End Rs.100,000 4 % 0.300 Market Housing HBFC (SMH) Upper Middle Rs.25,001 to Rs.50,000 Rs 1.25 ~ 2.50 15 % 1.125 Rs 0.5 ~ 1.25 Lower Middle Rs.10,001 to Rs.25,000 20 % 1.500 HBFC & Social Housing Bank Rs.4,001 to Rs.10,000 Rs 0.20~Rs.0.50 Small 40 % 3.000 Social Housing Micro Upto Rs.4,000 20 % 1.500 Rs 0.20 Income Distribution Mortgage Affordability (Rupees in Million) Housing Market Housing Shortage * (In Million) Per Capita Income Rs.5,000 per month Minimum Wage Rate Rs.4,000 per month * Total existing backlog is estimated at 7.5 Million units. The shortage in various income segments is assumed in the same proportion, as per income distribution pattern. However, actual shortage is much higher in low income segments as opposed to higher income segments.

Pakistan: Low Cost Low Income Housing Schemes Public Sector Projects Korangi Town Project, Surjani Town, Liyari Expressway Projects(3), Karachi. Public-Private Partnership Al-Azam Apartments, Maymar Apartments, Khuda Ki Basti (KKB-1,2,3) Pure Private Sector Initiatives Awami Villas, Rawalpindi Heritage Homes, Lahore

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