The Truth About Pakistan's Real Estate Myths

The Truth About Pakistan's Real Estate Myths
6 min read
22 December 2022

Future Prospects in the Real Estate Industry

People's general desire to protect their future motivates them to invest in Pakistan's real estate market. However, the previous administration's high taxes on the real estate industry have caused investment patterns in the sector to decline, obliterating it entirely. The real estate industry in Pakistan makes a significant contribution to economic growth, showing expansion even if FDI declines or infrastructure funding is still sparse. The World Bank estimates that the real estate sector such as Rudn Enclave assets account for between 60 and 70 percent of the nation's wealth, or between $300 to $400 billion.

It is Pakistan's second-largest employer after the agricultural industry. In addition to creating direct jobs, it also boosts demand across more than 400 different economic sectors, from construction (cement, steel, paint, building materials, architects, and urban planners) to financial services (house financing). As the government increased the amount of different taxes, particularly those relating to sale and purchase, severe measures were also imposed to demonstrate the financial backing of investments made in the previous three years. Because of the tremendous economic crisis that has affected this industry, many real estate consulting firms have closed their doors, and millions of individuals who work in it are currently going hungry.

Market Regulation That Is Too Strict

Investors in this industry have been deterred by FBR's stringent restrictions (ban on non-filers, mandatory registrations when purchasing property worth more than PKR 5 million, and hefty taxes on property transfer). Even when the financial markets are volatile, this is not necessarily a sign of the economy. However, the widespread misconception that the real estate industry is a lucrative investment opportunity is unfounded. In most nations, the real estate industry fills the void left by the absence of financial markets as a major driver of economic expansion.

Unfortunately, excessive regulation by the government and the FBR prevents this industry from doing so. Think about the KSE-100 index and the house price index (Figure 1 below). For just three years between 2011 and 2019, the total return on property prices has been higher than the KSE-100. Housing prices climbed by 147 percent during the same time period, compared to 230 percent growth for the KSE-100 index.

Investments periodically go through specific cycles, and from 2012 to 2015, this also happened in Pakistan's real estate market, with yearly returns of 16%, 25%, and 14%, respectively. For every other year, the return on the housing index ranges from 1% to 9%. The KSE-100 index, in contrast, is more volatile and provides both large returns and high losses; its biggest gain was 42% in 2016 and it saw a 19% loss in 2017.

The Real Estate Market After 2018

Following the change of government in 2018, the real estate market has experienced extreme difficulty. It has experienced difficulties with money, the economy, politics, a variety of policy concerns, and lack of confidence. Due largely to significant investments made by Pakistanis living abroad, it just about made it through the previous recession. Due to favorable currency rates for foreign investors, the Pakistani rupee's depreciation made real estate investments more affordable.

Over 30% of the visitors to website are Pakistanis from other countries wishing to invest. But given that Pakistan now ranks 120th out of 129 nations (earning just 3.9/10), investing in the real estate industry is already hazardous. For international investors, this kind of ranking is crucial. Due to this uncertainty and the tax laws, hundreds of foreign investors have moved their money elsewhere. The volume of foreign cash invested in real estate has decreased as a result of these nations' (such as the UAE and UK's) superior incentives.

According to SBP data, Pakistan received remittances of USD 21.84 billion in 2019–20. Due to the obstacles, they confront in operating other businesses, the majority of foreign investments are made in the real estate industry. Overregulation of the real estate industry deters foreign investment and might result in a decline in remittances to Pakistan. The government's strategy of not using development budgets has also led to a reduction in this sector's activity.

Real Estate in the Future

Despite all the government decisions, there were great expectations for this industry's growth in 2020. However, this time the problem is considerably more serious and has the potential to bring about a significant catastrophe in the real estate markets of all major cities, particularly Islamabad, Rawalpindi, Lahore, and Karachi.

It might be detrimental to raise taxes on a sector that could be increasing and contributing to economic expansion, such as the real estate industry. By initially encouraging the industry, the government should widen the tax base. Government should create a new real estate sector policy in the current context.

Ideas to Consider

As opposed to the present convoluted paperwork processes and dubious legal support, government must implement a well-structured, transparent, and centralized system for investors such as Sapphire Heights. After granting that industry industrial status, the government should create an industry regulator, define guidelines for land ownership and acquisition, and require registration for all property consultants and projects.

In case you have found a mistake in the text, please send a message to the author by selecting the mistake and pressing Ctrl-Enter.
kim peterson 2
Joined: 1 year ago
Comments (0)

    No comments yet

You must be logged in to comment.

Sign In / Sign Up