Interview with Mr. Ahmed Owais Thanvi — Managing Director, King’s Group (Builders & Developers)
PAGE: What kind of challenges could builders encounter in 2023?
Ahmed Owais Thanvi:Â The COVID-19 pandemic (and its related labor issues, supply chain challenges and rising interest rates) has recently tested the construction industry. It will continue to do so in 2023. However, companies that are nimble, tech-savvy and strategically focused should be able to weather obstacles, differentiate from competitors and prosper. Following positive trends in nonresidential construction over the past few years, recession risk looms due to high and rising interest rates which drive cost increases and a decline in spending. These pressures may turn 2023 into a year of caution for project owners concerned about their ability to obtain necessary financing. These issues and the ongoing labor and supply chain challenges add a layer of complexity that will impact activity volume in 2023. As a result, construction activity may decline, especially in industries like retail and office. However, even with the current economic challenges and construction, there are bright spots in the year ahead, including warehousing, distribution, healthcare and public infrastructure.
PAGE: What is your standpoint on cement and steel prices in 2023?
Ahmed Owais Thanvi: The big question on construction leaders’ minds is what’s in store for 2023. Inflation has plagued the industry and COVID-19 have continued to impact supply chains, causing materials prices to swing wildly. While lumber and plywood prices were a huge concern at the beginning of the year, that has since eased and cement and diesel costs are now giving contractors grief. That volatility makes it difficult for contractors to plan projects, and it has not been uniform across construction materials. Price hikes and shortages ease for some products, and to remain volatile for others. As the overall jobs market shows signs of weakening, the industry may be able to benefit from more people seeking work. Still, upcoming federal spending promises to keep demand for construction workers high.
PAGE: How would you comment on bank financing in the housing sector in 2023?
Ahmed Owais Thanvi: Rates are unlikely to return to pre-pandemic levels even as inflation cools. Instead, over the course of 2023, experts predict mortgage rates to fall in line with historical norms – between 3% and 7%. They’re already on the way there. The market in 2023 will most likely weaken, but some upward potential must be considered—even by those of us who remain pessimistic.
The problems are well known. First, home prices rose to nearly unscalable heights. In the years just before the pandemic, prices (adjusted for house quality) had risen by about six percent per year. In 2020 the gain accelerated to 12%, then 18% in 2021. By the middle of 2022, home prices were roughly 25% higher than the pre-pandemic trend line. That priced many first-time home buyers out of the market.
And those who could afford the higher prices faced, in late 2022, sharply higher mortgage rates. Thirty-year fixed-rate mortgages had cost less than three percent interest in the summer of 2021 but rose to 6.9% in October 2022. Rates have come down a little since October but remain twice as high as the cheapest rates available a couple of years ago.
PAGE: What is your perspective on construction activities and investment in 2023?
Ahmed Owais Thanvi: As soon as the country’s political situation becomes stable, it is anticipated that the investment climate will be. We expect this scenario to occur during the next several months. The political climate in Pakistan will make it a good time to invest in real estate in 2022. There is no sign of a slowdown in the real estate market in the next year or two. 2022 has been a chaotic year so far. By 2023, experts predict, the economy will begin to recover strongly. In 2023, new investments will be made in Pakistan’s real estate market, say industry experts. One reason for this is the general rise in property values, both commercial and residential. And there is a big payoff at the end. Historical evidence shows that after four or five years of investment, rewards begin to materialize. More and more people are becoming involved because of these reasons. As a result, we may expect significant growth in this area of the real estate market in 2022 and 2023. In the future, people are more likely to see their home projects as investments and to keep them until they can sell them for a large profit. Real estate is a safe place to invest because it always gives a good return. To some extent, financial success may be attained through real estate investments. Furthermore, it serves as a wonderful long-term residence for the family.