In April 2020, Prime Minister Imran Khan gave industrial status to the construction sector and announced what was hailed as a ‘historic’ amnesty scheme to boost economic activity through the encouragement of the low-risk construction industry. Among other many favourable incentives of this scheme, was the fact that withholding tax was waived off for the construction services (plumbing, electrification, shuttering, and allied services etc) and building materials (except cement and steel).

The package attracted so much activity that the government extended it for another year. As of September 2021, as many as 2,125 construction projects worth PKR 493 billion were registered with the Federal Board of Revenue (FBR) under this scheme. The FBR-registered projects were given tax incentives and elimination from the income source probe for the investors, provided that these projects are completed and delivered in 2023.

Concerns in the construction industry in relation to the rising cost of materials and labour shortages is nothing new. The lack of skilled workers and people entering apprenticeships have been a concern for some time in the industry. COVID-19 has however, exacerbated the issue of both demand and supply and for nearly 18 months there was a slowdown in the production of materials due to national and international lockdowns. The spread of the virus also impacted the ability of raw materials providers to harvest or mine and now, as we emerge from the pandemic, there has been a huge spike in demand leading to price spikes.

From a legal perspective, as the price of construction materials continues to soar, parties to construction contracts or who are in the process of negotiating such contracts are becoming more focused on who should bear the risk of such cost increases.

Because the commercial real estate market is constantly in flux, ensuring that you get the best deal requires a full understanding of the factors that may contribute to fluctuations at any time. This understanding is just as important to those looking to buy or invest in commercial real estate as it is for those selling or leasing their properties.

However, as the global economy recovers from the mid-term impacts of the prevailing coronavirus situation, the rise in inflation is dampening the growth of economies worldwide. The construction sector is one of the most negatively-affected industries as a result of what can be aptly described as a tectonic shift in world economy. As per a United Kingdom (UK)-based BCIS Materials Cost Index, the construction materials cost in the UK has reached a 40-year high. The same trend is currently being witnessed in Pakistan, which is leading to delayed developments and budget-busting per square foot construction cost in Pakistan.

Hence, all concerned parties in the matter seem to be tense in the matter. However, as time goes on and we move away from the covid-era there is bound to be some relief in the way things go about.