International Investor Opportunity in Construction Sector in Pakistan

Experts identify two sectors as most attractive for foreign investors after signing and execution of the China-Pakistan Economic Corridor (CPEC) over the last 5 years (i) Logistics because Belt and Road Initiative is estimated to give a tremendous boost to regional trade (ii) Construction industry for infrastructure development.

In July 2020, Government of Pakistan has launched Construction Industry Package as an initiative to stimulate economic activity. Key elements of this ambitious program include:

Construction of 5 million affordable housing units for low income groups in the next 5 years

Incentives for consumers: government subsidy of US$ 200 million in the form of subsidized interest rates and additional subsidy on first 100,000 housing applications for the Naya Pakistan Housing Project (NPHP

  1. Banks in Pakistan have been asked to allocate 5% of their financing portfolio for Construction Industry and Housing Projects (currently less than 1%)
  2. One Window Operations: Ease of administrative Process for government department approvals through one window operation and on-line application processing
  3. Construction Industry Development Board to be set up to support the sector.
  4. Tax incentives for investors
    • The tax rate will be fixed for the construction sector, and constructors will be charged tax per square foot or square yard
    • People carrying out construction in the Naya Pakistan Housing Scheme for the poor will only have to pay 10 per cent of the fixed tax
    • Withholding tax will be waived off for all construction sectors except the formal sectors of steel and cement
    • Sales tax will be reduced in coordination with provinces
    • Any family selling their house will not have to pay any capital gains tax

Covid-19 pandemic had caused a recession across the world, leaving countries scrambling to keep the economic wheel turning. Therefore, government of Pakistan has decided to keep the economy running through the housing and construction sector. It is estimated that 60 associated industries form linkages with the construction and housing industry which makes this sector pivotal to economic development as it is crucial for providing shelter, employment and infrastructure. Output of construction industry is estimated over 6.5% of Pakistan’s GDP.

The construction sector is a very important and productive sector of the Malaysian economy. the Malaysian construction industry is more advanced, modernized and well equipped. It has a potential to deliver complex heavy infrastructure and skyscraper projects by using highly sophisticated mechanized techniques. This has resulted in rapid execution of many projects like high rise commercial and industrial buildings, highways, expressways, bridges and tunnels, housing schemes, schools and hospitals and sports and spa centers, monorail and mass rapid transit rail system, and power plants. The expansion of tourism and manufacturing sector have also been playing an effective role to maintain growth momentum of the construction industry. The Malaysian construction market is expected to register a CAGR of 4.7% over the forecast period, 2019 to 2024; the construction industry contributed 5.9 % to the GDP in 2017.

Pakistan offers an attractive market and level playing field for Malaysian construction industry players to explore and expand internationally.