Cement demand in Pakistan set to rise by two million tons in FY26

Pakistan’s cement demand is expected to increase by an additional two million tons as the government targets construction of 200,000 low- and middle-income housing units in the fiscal year 2025–26 (FY26) budget. The cement sector, which has averaged below 60% capacity utilization over the past three years, could see a recovery alongside other cyclical industries.

To support Pakistan’s struggling real estate and construction sector, the federal government has proposed PKR 5 billion in direct housing subsidies and another PKR 5 billion in mark-up subsidies in the FY26 budget. These funds are aimed at facilitating the development of affordable housing across the country.

“We believe that construction of 200,000 houses could potentially create an incremental cement demand of 2 million tons,” stated a report from Insight Securities released Tuesday.

The report added that monetary easing and targeted government policies could support demand recovery in cyclical sectors, especially cement. A recovery in volumes is seen as a key upside trigger for the industry.

The federal budget includes several real estate-related incentives. These include tax credit on mortgage financing for individuals constructing or acquiring personal residences up to 250 square yards or 2,000 square feet; a150 basis-point reduction in withholding tax for property buyers at each slab; elimination of the 7% federal excise duty (FED) on allotment or transfer of immovable property that was introduced last year; and reduced stamp duty on property transactions in the federal territory.

At the provincial level, Khyber Pakhtunkhwa has proposed reducing stamp duty from 2% to 1% for houses up to 4.9 marlas. Meanwhile, Sindh has offered an exemption from sales tax on services (SST) for construction of homes up to 10,000 square feet intended for personal use.

In addition, the federal government has signaled renewed commitment to accelerating key water infrastructure projects, including dam construction, in response to ongoing water disputes with India. These projects are also expected to generate medium-term cement demand.

However, not all policy moves may support the sector. Restrictions on property purchases by non-filers and a 150 basis-point increase in withholding tax for property sellers could dampen cyclical growth.

According to the World Bank’s 2022 report, Pakistan faces an annual housing demand of 350,000 units, far exceeding the current supply of just 150,000 units per year. This mismatch has led to an urban housing backlog of more than 10 million units.

World Bank data also indicates that 25% of Pakistan’s population currently lives in urban areas, a number projected to double between 2030 and 2040. The rising urban population is expected to increase pressure on already strained housing infrastructure.

While several government housing initiatives have been launched over the years, few have achieved significant success. The Naya Pakistan Housing Scheme, which aimed to build five million homes, ultimately approved only 3.5% of its target and delivered 54,000 houses before being suspended due to fiscal constraints and a change in political leadership.

Despite past setbacks, analysts view the new 200,000-unit plan as more realistic, given current construction costs and limited fiscal space.