Pakistan

How to Start a Construction Company in Pakistan

Housing construction not only improves the living standards of the public but also contributes towards the overall economic growth. The construction sector is linked with more than 40 industries and thus has multiple effects on the economy. Moreover, given the situation of Pakistan, a continuous growth in population and a huge housing shortage faced by most cities, the demand for houses is highly unlikely to slow down. There is a rapid growth in urbanization and the continuous struggle towards better quality of life. Consequentially, as a first step towards higher standards of living, the housing sector experiences growth.

This pre-feasibility study provides the general information for initiating the ‘Housing Construction’ business mainly involving construction of residential houses in the key areas of major big cities in Pakistan.

The total project cost is estimated at Rs. 27.01 million, which includes a capital investment of Rs. 1.48 million and working capital of Rs. 25.53 million. The proposed project is financed through 50% debt and 50% equity. The Project’s NPV is around Rs. 116.32 million, with an IRR of 54% and Payback Period of 3.44 years. Selection of a good location and purchase of land at competitive price will be the key success factor in timely selling of houses and maximizing profit of the construction company.

Housing is the basic and fundamental human need, yet millions are caught in the struggle to have a roof over their head. Pakistan is faced with a chronic shortage of housing against a backdrop of a rapidly rising population. Most recent estimates identify a national shortage of 7.9 million houses. The need of the hour is to exploit the hidden potentials of the housing and construction sector, which is very well recognized to generate maximum employment opportunities for less skilled labor force, reducing poverty and raising the standards of public living.

Moreover, housing and construction is closely linked with more than 40 other industries and contributes to the overall economic revival and growth. Its multiple effects on the economy have the robust potential to generate industrial activities, develop small and medium enterprises (SMEs) self-employment opportunities, business, commerce and trade activities and at the same time encouraging utilization of indigenous natural and man-made resources. Therefore, it is imperative to develop this industry to utilize the real estate and housing industry potential for the economic development of the country and certainly it has the necessary potential to become the engine of change and progress for the economy of Pakistan.

The proposed Housing Construction Company will focus on modern design and superior quality material used for constructing houses. This pre-feasibility study proposes construction of houses covering an area of 5 Marla (1,125 sq. ft), 7 Marla (1,575 sq. ft) and 10 Marla (2,250 sq. ft) in developed and developing housing societies of major cities in Pakistan. To start with, 3 units of 5 marla house, 2 units of 7 marla house and 3 units of 10 marla houses in the first year of operation and will increase the number of units in the upcoming years. The starting operational capacity of the company will be 25% (i.e. 8 houses), which will be subsequently increased at 10% growth rate up to maximum capacity of 95% (i.e. 26 houses) in 8th year of operation.

The proposed company will provide the direct employment opportunity to 7 individuals including the owner / manager, whereas the contractors will engage a large number of temporary labors for the construction of houses. Company office will be established in rented premises of newly established housing societies of any major city.

Total project cost is estimated at Rs. 27.01 million, including capital investment of Rs. 1.48 million and working capital of Rs. 25.53 million. The legal business status of this project is proposed as ‘Sole Proprietorship’.

Critical Factors for Success of a Construction Company in Pakistan

Following critical factors are to be taken care of, for a successful Housing Construction Company business.

  • Entrepreneur’s knowledge, background and relevant experience in the field of housing and construction
  • Careful selection of good location and purchase of land at a competitive price
  • Modern and aesthetic architecture designs and use of superior quality material
  • Efficient utilization of material and resources to manage quality as well as service delivery within specified financial resources and timeframe
  • Investment in good construction material and efficient use of skilled and semi skilled labor force
  • Location considerations; proximity of office to develop and newly developing housing schemes

Developed or newly developing housing societies in urban centers such as Karachi, Lahore, Peshawar, Quetta, Rawalpindi, Islamabad, Multan, Sialkot, Faisalabad, Hyderabad, etc., would be an ideal choice for starting the proposed business due to greater demand of houses. Requisite materials, infrastructure facilities, etc. would also be easily available in such areas. However, it is recommended that the company office should be located in an easily approachable location, in line with the selected target market.

Potential Target Market (Customers)

The potential target market for the proposed business venture is the general public of upper-middle income group who have migrated to urban centers for better livelihood of their families. Particularly, working class of urban centers would be the major potential target customers. Considering to that, major cities for instance Karachi, Lahore, Peshawar, Quetta, Rawalpindi, Islamabad, Multan, Sialkot, Faisalabad, Hyderabad, etc., with large urban base would be the potential target markets for the proposed business.

Financial Requirements for a Construction Company in Pakistan

All the assumptions in this financial model are based upon a total capacity of constructing 26 houses. Whereas, during first year of operation it is assumed that company would be able to construct and sold 8 houses at 25% capacity utilization. The financial analysis of the proposed project is based on the stated number of constructed and sold houses.

Complete pre-feasibility study of a construction company in Pakistan can be downloaded from SMEDA’s website.

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