Investments in the Real Estate Sector

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The real estate sector of Pakistan has vast growth potential. Every year, 40 billion USD are invested in the sector, out of which 15-20 billion USD are invested by overseas Pakistanis. As the real estate sector receives massive investments from locals and overseas Pakistanis, it is crucial to ensure transparency and accountability in all types of real estate transactions. The majority of middle-income homebuyers invest their entire life savings in this sector. Therefore, it must aim to provide full security to the investments of these people.

Currently, the state of determining ownership of land and approval from local government authorities is tedious and confusing for most real estate investors. According to the State Bank of Pakistan, out of the 1000+ high rise commercial projects of Islamabad, 750 remain unapproved or are currently under the approval process. These commercial projects hold a significant amount of investor capital and the lack of approval from government authorities means that those investments can be jeopardized. To make investments safe and secure, there is a need to bring rigorous checks and balances in the real estate sector, especially related to approval and ownership of land and property

Size of Urban Economy: Regional Comparison

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An increase in the rate of urbanization is linked with an expanding economy. In Pakistan, 95% of the federal tax revenue is collected from the residents of the major metropolitan cities like Karachi, Lahore, and Islamabad. Karachi contributes 55% to the urban economy, followed by Islamabad at 16%, and Lahore at 15%. In total, Karachi contributes almost 25% to the national GDP.

The urban economy in total generates about 55% of the country’s GDP. Moreover, the annual growth rate of the urban economy stands at 4.5%, compared to less than 2.5% for rural areas. A regional comparison of Pakistan’s urban economy to India and Indonesia shows that the country needs to invest in the development of its urban areas. India’s urban areas are 10% smaller than Pakistan’s, however, their urban areas generate 58% of the country’s total GDP.

Pakistan has been one of the fastest urbanizing regions in South Asia. The expansion of cities and the establishment of new ones imply that the size of the country’s urban economy needs to increase simultaneously.

Financial Tips and Habits that can Help you Afford a House Early in Life

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Introduction

Home buying is one of the biggest financial investments most people make during their lifetime. The majority of homebuyers invest their entire life savings to ensure they can have a home in their retirement life. Buying a house comes with an enormous amount of financial responsibility, especially for young people who are not used to making costly purchases. Given the increase in land and house prices, millennials and first-time homebuyers will have an incredibly difficult time buying their first house.

Today, the task of buying a house requires a certain level of financial discipline that can be honed by practising stable financial decision making over time. Below is a collection of tips and habits that can help you buy your first house early in your life.

Consider Where You Want to Live

Location is a primary factor in determining the affordability of a house. The choice of city is an important factor which you shouldn’t rush with while deciding where to live considering all other urban amenities. Another important factor in determining affordability is what stage of your career you are in. Many people who are in their twenties and thirties, are still trying to figure out their career options or trying to find their business niche. Home buying experts advise young homebuyers to give serious thought to the city where they will buy their house. It should be a place where the residents can find their workplace and personal comfort.

Therefore, if you want to know whether a house or apartment is the right choice for your current and future needs, try asking the following questions before thinking about buying a house,

  1.       Do I want to live in an urban or rural neighbourhood?

  2.       Would I be okay with neighbours in my building, or do I want a standalone house?

  3.       Do I care how long my commute is?

  4.       Do I want to drive, ride the train, or walk to my normal destinations?

Market Research to Check Affordability

Market research is important to explore all affordable home buying options. Home search websites are great tools to help a potential home buyer in getting a closer look at the market. Market research will provide a perspective on the type of properties for sale and what sellers seek. Doing the due research will allow you to gain an understanding of how much an average home can cost, what one can afford, and how much one needs to save for its down payment.

In case the houses in the desired location or neighbourhood are out of the pocket range, one can save more money or invest in saving schemes. You can even downsize the type of home or search for a neighbourhood in another locality, but with more affordable prices.

Keep Your Spending Habits in Check

The type of spending habits and the level of financial discipline one exercises can make or break your ability to buy a house in the long run. Young people are often found to be impulsive buyers; therefore, they usually end up with loans and a dented credit rating. If you have been falling behind on your credit card payment, you have borrowed money from friends and family and have been unable to return it, you will have a challenging time finding the financial discipline for buying a house. It is important to learn financial responsibility at a young age as the lack of financial discipline will haunt you in later life. For improved financial management, check your bank account and credit report early, so that you have sufficient time to correct any issue. Banks lend mortgage loans and house financing assistance to people who have a clean and error-free credit report. Such financial credibility makes you look financially authentic and trustworthy. As a result, creditors or lending agencies will trust you with a loan.

Start Saving for a Down Payment

A down payment is a percentage of your home’s buying price. Down payment is paid upfront when a home loan is closed. The down payment amount is also the first financial investment you make in a potential house. It can range from 3.5 to 20% of the total cost of the home and the amount depends on the credit score, mortgage interest rate and current financial situation. Real estate experts advise homebuyers to consider a down payment of 20% of the property price as it will allow you a bigger stake in the property right away. It is crucial to pay more upfront as it allows you to lower your monthly payments in the future and maintain a financial buffer.

However, the down payment is not the only payment you will be making during home buying. It is an entire process that you need to be able to afford. By using a mortgage calculator one can determine how much home you can afford based on the monthly payments you’re able to make.

Divide the Monthly Income into Three Sections

In Pakistan, the majority of home buyers are salaried class individuals. Besides the small class of rich and elite investors, first-time homebuyers need to save up a considerable amount of their monthly income to be able to afford a house. Saving money is a prerequisite to afford anything of substantial value. For salaried class individual home buyers, one should follow the 50/30/20 rule of budgeting. One should spend 50% of their salary on their actual needs, 30% on the things you want, and 20% goes on saving. This 20% can also mean investing in or saving up for the house. If you stick religiously to this bifurcation, buying your first house will become much easier.

Conclusion

The process of buying a house requires a certain level of financial discipline. Most first-time home buyers find it difficult to make the initial payments for their first house. Real estate experts advise that there is certain market-level research that needs to be done by potential home buyers before they can make the decision of buying a house. Home location is one of the biggest factors in determining affordability and the buying decision. It is advised that potential homebuyers do their research well in this area before making any decision. This is followed by financial discipline and a check on spending habits in the long run so that home buyers are able to afford a house. It becomes incredibly easy to save and invest if potential home buyers are in the habit of doing so. Lastly, salaried class individuals that make up the majority of the middle-income class home buyers, need to use effective saving strategies to become financially capable of buying their first house.

Total Agricultural Factor Productivity (TAFP): Regional Comparison

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Total Agricultural Factor Productivity is an indicator of how efficiently agricultural land, labour, capital, and other materials like fertilizers and pesticides, are used to produce agricultural output. TAFP is calculated as the ratio of total agricultural output to total input. One possible explanation of Pakistan’s stagnant agricultural sector is the slowing down of TFP growth in the sector.

In the developed countries of the world, the shift from agricultural and farm to non-farm activities was facilitated by increasing agricultural productivity. An increased TFP meant that the agricultural sector was able to produce more crops with less labour. This also meant the availability of more labour for non-agricultural sectors.

A comparison of Pakistan’s TAFP with South Asian neighbours shows that despite significant growth in the 1980s and 1990s, the sector has not been able to increase its TAFP and it has declined in the last decade. Countries like Bangladesh and Vietnam, which started with less TAFP in the 1980s ended up achieving growth multiple times more than Pakistan’s agricultural sector.

Pakistan’s Trade Compared to Upper Middle Income Countries

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The Trade-to-GDP ratio is the sum of exports and imports of goods and services measured as a share of Gross Domestic Product (GDP). The trade-to-GDP ratio has macroeconomic significance in the economy of a country. It is calculated by dividing the aggregate value of imports and exports over a period by the Gross Domestic Product for the same period. Pakistan’s current trade to GDP ratio is 26%. For upper-middle-income countries, the average stands at 47%.

The quality of the country’s export goods and services play a central role in determining the trade to GDP ratio. Pakistan’s exports have been consistently low compared to its imports and also of substandard quality. In addition, barriers to trade or trade tariffs on the country’s exports have greatly hindered the trade to GDP ratio significantly.