Real Estate:
Real Estate refers to a real or physical property having many facets including development, appraisal, marketing, selling, leasing, and management of commercial, industrial, residential, and agricultural properties and much more. This industry strongly depends upon a country’s economy although it remains somewhat consistent due to the fact that there is always a need for houses, shops, and office spaces.
Importance of the Real Estate Industry:
The Real Estate Industry acts as a critical driver for the economic growth of a country in the best way possible. It helps shape a country’s economy by contributing to Foreign Direct Investment (FDI) and property taxes, providing long-term business opportunities, and helping improve the overall infrastructure.
Real Estate Industry in Pakistan:
For Pakistan, the Real Estate Industry is the most dominant segment as it is intertwined with more than 2000 industries including construction, cement, glass, and electronics industries. Every year, almost $5.2 billion is spent on construction activities, and approximately 2% of the country’s GDP is spent on purchasing residential and commercial plots. According to the World Bank, the real estate market adds up to 60% to 70% of the country’s total wealth. Hence, this industry has the potential to strengthen and revitalize the economy making it the backbone of our country.
Role of Real Estate in the Current Situation of Pakistan:
Since the political conflicts began, inflation in Pakistan has reached an all-time high and it is still increasing every week. Catastrophic floods worsened the situation even more. For these reasons, real estate prices are rising as the developers then have to invest more when constructing new properties. Moreover, this would increase the value of current existing properties and real estate assets because of the devaluation of the currency.
This is where real estate steps in. As one of Pakistan’s most prominent businessmen, Mian Muhammad Mansha stated that Foreign Direct Investment (FDI) can help to alleviate Pakistan’s economic challenges. This will boost the nation’s foreign reserves and encourage economic growth. Hence, Real estate is known as a blessing in disguise. With inflation at its peak, people take their money out of financial institutions and invest in real estate as it is the most stable and non-volatile option if someone wants to invest in Pakistan enabling safe cash flows, tax savings, and many other perks.
Challenges Faced by Real Estate Industry in Pakistan:
Despite being advantageous, Real Estate Industry is facing a whole lot of challenges in the current unfortunate situation in Pakistan.
- Hyperinflation
The political turmoil and strengthening of the dollar against emerging Pakistani currency have caused the Rupee to depreciate, resulting in hyperinflation. Like all other industries, Real Estate Industry is also affected to a large extent as the prices of labour, raw materials utilized in construction, and transportation have increased and have driven up the prices of construction.
Inflation in the Last 20 Years
- Elevated Interest Rate
Interest rate is also a critical factor for the growth of the real estate industry. Due to the elevated Interest rate, few people take out loans from financial institutions resulting in a huge decline in Real Estate Investment.
Elevation in Interest Rate in the last 5 years
- Excessive Rules and Regulations
Regulations are necessary to enforce and monitor social control and help to provide a sophisticated economic framework. But it won’t be wrong to say that every Industry in Pakistan is overregulated resulting in extreme consumption of time, excessive administrative work, and most importantly, the differences in the subjectivity of politicians. When it comes to the Real Estate industry, in order to build a High-Rise building in Pakistan, it takes more than 7 NOCs just to get the permission.
- Competitive Market
Real Estate Industry has grown tremendously in the past few years making the market extremely competitive for real estate developers and builders. Although recent political unrest and inflation have caused the construction process to be slowed down and the operational and sales costs to be increased.
- Scams in the market
With the Real Estate Industry evolving continuously in Pakistan, Real Estate scams are also increasing rapidly. These scams vary from false promises to fake documentation, fake discount offers to property ownership frauds, and much more.
Needs and Demands of the Real Estate Industry
- Strict rules and regulations by FBR have discouraged foreign investors to invest in the real estate sector. Such long and complicated procedures and doubtful legal support have created a whole lot of problems for real estate developers. Government should establish a real estate regulator for this industry and must revise already established rules that can help favour and promote this industry.
- Hyperinflation and elevated interest rates have significantly slowed down the construction process due to the fluctuation in the rates of construction raw materials. In order to attain sustainability, some sort of subsidy on construction materials by the government must be provided to control hyperinflation and currency depreciation.
- The recent situation in Pakistan i.e., political instability has affected the dynamics of the real estate industry. It has also caused a lack of confidence among investors, developers, and other market participants including realtors due to uncertainty of the future. A healthy political environment is necessary for the real estate industry to prosper.
- Proper rules and legislation are needed to overcome scams and fraud in the real estate industry.
Conclusion:
All in All, Real Estate Industry serves as the backbone of the country as it not only ensures foreign investment contributing towards the revenue but also has the potential to open massive employment opportunities. Despite facing multiple issues, this industry will always be in ever-increasing demand making it an integral part of our country to progress both economically and industrially.
But the current situation of Pakistan has caused a whole lot of assumptions regarding this industry. So, I’ll end this discussion while answering the most important question which is:
Is it the right time to invest in Real Estate?
On the whole, we can say that this is the most suitable time for someone to invest in real estate considering the current economic situation of Pakistan. With the careful decision of where to invest, one can still earn a steady flow of income and achieve financial freedom in the long run even during this economic downturn.