Top Real Estate Challenges in Pakistan 2021
Real estate is a rapidly growing industry in Pakistan, with the country spending so much on construction, representing significant growth in the country’s real estate market.
Despite the progress, many people in Pakistan continue to lack basic living facilities, such as houses. Thus, it demonstrates unequivocally that the real estate market requires significant growth for all sources of income to afford necessities.
The PTI Government maintains that the budget is tax-free, a significant accomplishment in the current environment, despite opposition parties’ rejection of the budget because it is incapable of dealing with the financial crisis. Consider the major trends shaping Pakistan’s real estate market in 2021.i.e. Nova City
Pakistan’s Budget 2020-21 and the Real Estate Industry: Property Investment
The budget is said to be a significant economic stimulant, but it will inevitably collapse. As a result, real estate and the construction sector will continue to decline;
The economy is teetering on the brink of collapse;
Budget 2020-21 is a piece of paper that bears no resemblance to reality. According to the IMF, Pakistan’s economy will contract by 1.5 percent in 2020-21, while the government projects a growth of 2.1 percent. Given the government’s 6.5 percent inflation target, real GDP will contract by 4.5 percent.
COVID-19 and Locust Attack are sufficient to bring Pakistan’s economy to a halt. Unemployment remains high. Another war with India is possible. Who will purchase land in such an uncertain political and economic environment?
Pakistan’s debt-to-GDP ratio is at an all-time high;
Between 2003 and 2013, Pakistan experienced a property boom. During both crashes, the debt-to-GDP ratio decreased. Debt to GDP ratio in 2003, the ratio was 50%, compared to 65% in 2013. However, the debt-to-GDP proportion has risen to 86 percent and is continuing to grow. As a result, we can see how the price of real estate in Pakistan is heading.
There are no end users to purchase real estate; the average person lacks purchasing power.
The end-users are local Pakistani professionals and businessmen, as well as Pakistani expatriates. Local Pakistanis’ purchasing power is dwindling. Whereas Middle Eastern countries have passed legislation requiring private corporations to cut employee salaries by 40%. In 2020-21, remittances would decline by $5 billion, the amount needed to build one LAC house. The current scenario of a real estate crash will continue.
Pakistan’s Economy and the Future of the Real Estate Industry
After resuming production in June following a 75-day closure due to the COVID-19 lockdown, Pakistan’s largest auto tyre manufacturer, General Tyre and Rubber Company, reported a 42 percent increase in net sales of PKR 3.2 billion in the first quarter of 2020 over the same period last year. This increase in sales is also partially a result of government efforts to combat illegal tyre importation.
According to recent property news, the government announced the Rolling Spectrum Strategy 2020-2023 to assist commercial telecommunications operators in planning network investments in response to the massive increase in data usage. In Pakistan, mobile data traffic increased by 165 percent in 2017 from 69 petabytes to 128 petabytes. As a result, data consumption increased from 0.34 GB per user per month in 2016 to 1.75 GB per user per month in 2018.
Exports increased by 10.5 percent in October 2020, increasing by US$ 196 million to US$ 2.1 billion. On the other hand, imports fell 15% to US$3.7 billion in October 2020, a decrease of US$647 million from the previous month.
Current Economic Conditions and Inflation Rate
Globe Estate & Builders has verified our portfolio of construction projects, which has increased significantly since 2021 and is expected to keep growing in 2022. In addition, Goldcrest, Indigo Heights, and the newly opened Downtown Mall Liberty exceed expectations as investment realization continues to grow.
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It is not all doom and gloom in the plots market, as DHA Peshawar has more than doubled, and in some cases tripled, investment in the last two years, reaching an all-time above. Investment in DHA Lahore has been bottom-up and represents an excellent opportunity for property investors.
Apart from this, DHA Multan provides an excellent opportunity to invest in plots; while it is not as large as DHA Peshawar, it will undoubtedly be a region that sees growth in 2020 and 2021.
Real Estate Contributes to Pakistan’s Economic Growth
Pakistan’s real estate sector has been critical to the country’s economic development. According to World Bank estimates, real estate assets account for between 60% and 70% of total wealth in the country; if these figures are extrapolated to Pakistan, the real estate sector is estimated to be worth between $300 and $400 billion. Unfortunately, real estate underperformed in 2019 due to several financial, economic, and political headwinds. Nonetheless, there is a strong analysis that the real sector will grow more and more in 2022.
Since 2017, real estate has slowed due to political turmoil and fluctuating economic and financial policies. In 2018-19, the absence of investor incentives, the prohibition of non-filers from purchasing a property worth more than $5 million without first registering with the Federal Revenue Board (FBR), the FBR’s strict regulation of non-filers banking transactions, and the imposition of high property transfer taxes discouraged investors from investing in the sector. Another factor contributing to the real estate downturn is the inability of the government to use its development budget, which resulted in a contraction of the building sector and, consequently, the real estate sector.
CPEC is another amazing development project that will transform Pakistan’s economy, resulting in a boom in the real estate sector for the next few years. Although the CPEC’s special economic zones have not been completed, the CPEC’s positive effects can be seen in the improved state of the power sector and the partial completion of the Lahore-Karachi motorway.
The distance between Lahore and Multan has been reduced to three and a half hours from the previous five hours. As a result, Multan is now considered Pakistan’s new economic center by businesses and investors. The development of DHA Multan and DHA Bahawalpur are just a few examples that demonstrate how CPEC will transform the real estate sector by 2020.
Without a doubt, the real estate market will continue to grow in the coming years. However, there are some impediments to growth in Pakistan’s real estate sector.
The Real Estate Market Reforms of 2021: Pakistan’s Housing Industry
Since becoming Pakistan’s Prime Minister, Imran Khan has implemented several reforms and enhancements to the country’s real estate sector, all of which have a direct impact on the Pakistani economy in multiple ways, including the following:
The majority of these changes were made to increase the government’s tax revenue.
Prevents speculative real estate purchases.
As a result of these changes, investors have decreased their investment in Pakistan’s real estate industry, putting its economy in peril.
Government’s Challenges: Managing Projects
The real estate market has been covered by uneducated brokers and dealers who lack the expertise necessary to guide people further, resulting in fraud. A real estate authority is required in the country to assist in protecting the rights of land-assigned individuals. Additionally, there is an urgent need to supervise the development of societies by developers and builders, as the procedure of land consolidation takes several years to complete. They were watching some real estate regulators instill trust in the public, particularly overseas Pakistanis, allowing them to invest their money in real estate without fear of being scammed.
The government must develop long-term policies aimed at broadening the tax base. Taxing already-taxed individuals would be detrimental in two ways: first, it would erode the tax base as people began using cash transactions rather than banking transactions to conceal their wealth; second, investors would park their wealth outside Pakistan, purchasing assets in the United Kingdom, Dubai, and offshore companies. A gradual approach to system reform is necessary, as drastic changes can harm the economy, particularly real estate.
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