8 Predictions for the Future of Pakistan’s Real Estate Sector

 
 
 
8 Predictions for the Future of Pakistan’s Real Estate Sector

Introduction

Real Estate is one of the fastest-growing industries in the world and the safest investment option for people having a steady cash flow. The sector has a significant contribution to the economy every year. However, due to a lack of planning, regulation, and access to information, the real estate market has been tumultuous since the COVID-19 pandemic. Unemployment, resistance to moving, and reduced savings are all factors that have had a significant impact on the real estate market. Pakistan, like many other countries, was severely affected by the adverse effects of pandemic induced lockdowns and subsequent restrictions on the construction industry. However, recent trends in real estate show promising changes, with the sector being the most rapidly growing sector in the country.

Pakistan’s Real Estate Market

Several factors affect housing price, consumer behavior, and the market. An increase in Pakistan’s population leads to an increase in housing demand, resulting in market appreciation and less availability of affordable houses. Therefore, Pakistan currently does not have enough housing options available to meet the population’s needs. Moreover, an increase in inflation further prevents people from buying property and causes them to rent or sublease it. Inflation has also caused a rise in construction prices because of raised wages, increase in machinery cost and building supplies, as an effect of which many real estate projects have slowed down or come to a halt.

When it comes to the problems pertaining to the real estate industry in Pakistan, four major challenges are at the forefront. The country suffers from lack of planning, regulation, and access to information, all of which result in malpractices being carried out on a wide scale.

Predictions

Keeping these factors in mind, we have predicted what the future of real estate in Pakistan in terms of buying power, market appreciation, demand, supply and renting would look like.

Here are eight predictions for the future of the real estate market in Pakistan.

 1. Buying Residential Real Estate is not a Priority

Even though many local and overseas Pakistani citizens invest in the real estate sector, there will be lesser buying of residential property. This is because residential property is usually purchased using savings. However, the covid 19 pandemic and the subsequent inflation has resulted in many people losing their jobs and utilizing these savings to sustain themselves. The unemployment rate increased by 34.1% between the pre-lockdown and the first wave lockdown period, and mean income fell by over 42%. [1] Even now, as we move towards normalcy and people are finding employment, most individuals are focused on making up for the amount lost during the lockdown, which is why buying real estate might not be priority for some time. For the same reason, secondhand markets will see a downward trend.

2. Real Estate Market Will Appreciate

The real estate market in Pakistan will witness appreciation for three significant reasons -scarcity, utility, and demand.

Scarcity: The country is suffering from a lack of residential real estate, with a current housing backlog of 10.3 million houses.

Utility: Homes have recently become popular workplaces owing to the increase in hybrid and work from home culture.

Demand: There is a massive demand for housing in Pakistan since 64 percent of the population is younger than 30, so they are currently looking for an independent space to live in with their family. Moreover, the increasing population requires more housing spaces to cater to everyone.

3. Increase in Demand and Price for Family Homes

Pakistan is heavily embedded in a family system, so there is a greater demand for multi-family homes than single-family homes. More than 60% of households in the country have three or more adults. Resultantly, people would prefer to buy more multi-family homes, their vacancies will go down, and less supply would mean greater prices.

4. Housing Prices to Become Unaffordable

Pakistan is looking at a lack of inventory in the economic housing space, which happens to be the only property most of the population can afford. Moreover, there has been a shift towards urban migration, further limiting the options available because of growing demand. Supply for affordable housing continues to decrease, and the number of buyers for them is increasing steadily.

5. The Market will Either Slow Down or Have New Investors

Mortgage rates are witnessing an increase, given the high rate of inflation. Depending on where the mortgage rates of the country end up, it will either slow down the housing market or introduce new investors. Moreover, getting a mortgage in Pakistan is difficult owing to fragmented and incomplete land records, which will further increase the chances of first-time buyers investing in residential real estate. According to the State Bank of Pakistan, there are less than 60,000 mortgages in a country of 220 million people.

6. The Use of Technology

Real Estate companies in Pakistan have generally shifted towards adopting technology to drive the value of assets. There has been an increase in online real estate businesses and transactions. Online sales transactions represented 15% of all real estate transactions in Dubai in 2021. Also, Virtual Reality has been introduced to help real estate developers give their clients a realistic view of the property, so they know what they are purchasing. Real Estate investors use Artificial Intelligence to regulate expenses and deal with risks.

7. Increase in Sublease Space

The COVID-19 pandemic has caused an increase in work-from-home and hybrid work culture. Owing to this, the demand for commercial office spaces has weakened, and they are left deserted. As a response, many offices have started subleasing their vacant spaces to mitigate costs. The United States saw a 39% increase in subleasing since the pandemic.

8. Growth in Rental Market

Pakistan has seen an increase in property prices in the last two decades. The income level of the masses cannot keep up with inflating prices. As an alternative, people have started looking towards renting properties to meet housing demand. Currently, 25% of people live in rented spaces, and the number is expected to increase.

Way Forward

The real estate industry has untapped potential and can entirely change Pakistan’s economic condition if catered to adequately. The government needs to ensure that there is proper regulation and that laws about real estate are implemented. This would result in appropriate paperwork, making getting mortgages easier for people. Banks should be encouraged to allow initial instalments with lower amounts and a repayment schedule in line with the borrower’s income. The government should try to control inflation by carefully coordinating monetary and fiscal policies so that people are not discouraged from buying property. Pakistan also needs to digitise all land records and map property across different provinces to secure land rights. Also, if more projects like the Naya Pakistan Housing Program are undertaken, it would significantly address the country’s housing shortage and make affordable housing a reality for many people.

References

Cheema, A. Rehman, Maha. (2021, April 6). “COVID 19 Pandemic’s Economic Burden in Pakistan”. Research Centre at LUMS. [1]

https://mhrc.lums.edu.pk/covid-19-pandemics-economic-burden-in-pakistan/

Tahir, M. (2021, Nov 18). “How renting can help mitigate the housing crises in Pakistan”. GraanaBlog [2]

https://www.graana.com/blog/how-renting-can-help-mitigate-the-housing-crisis-in-pakistan/

Ahmad, S. (2018, 24 July). “Unleashing the potential of a young Pakistan”. UNDP [3]

https://hdr.undp.org/content/unleashing-potential-young-pakistan#:~:text=Currently%2C%2064%20percent%20of%20the,we%20define%20as%20the%20youth).

Ahmed, T. Mubashir, S. “Characteristics of Households and Respondents”. DHSProgram [4]

https://dhsprogram.com/pubs/pdf/FR29/03Chapter3.pdf

“Unlocking Affordable Housing Finance for Unbanked Sector in Pakistan”. (2022, 23 Feb). Reall.net [5]

https://reall.net/blog/unlocking-affordable-housing-finance-for-unbanked-sector-in-pakistan/

“UAE-based Real Estate Outfit registers 200% Increase in Online Overseas Sales”. Arabian Business

(2021, 21 Oct). [6]

https://www.arabianbusiness.com/industries/real-estate/470399-uae-based-real-estate-outfit-registers-200-increase-in-online-overseas-sales

White, K. (2021, 26 Jan). “Office Sublease Spaces Increased by 39% Since Start of COVID-19 Pandemic”.

Site Selection Group [7]

https://info.siteselectiongroup.com/blog/office-sublease-space-increased-by-39-since-start-of-covid-19-pandemicc

“Is Home Ownership Percentage Better in Pakistan”. (2019, 19 Nov) Homes Pakistan [8]

https://www.homespakistan.com/blog/Is-Home-Ownership-Percentage-Better-in-Pakistan/12081

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