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How Real Estate Contributes to Pakistan’s Economy

By 09/04/2021 0 Comments

The incumbent government of Pakistan is showing interest in real estate, a sector that remained neglected previously.

The global economic landscape is transforming in different ways, creating numerous opportunities for investment and growth. The real estate sector is a competitive industry that has observed tremendous growth compared to other major sectors of the economy, such as agriculture, technology, energy, and manufactured goods. According to the World Bank estimate, the size of a country’s real estate assets constitutes between 60 to 70 percent of its total wealth. In that case, Pakistan’s real estate sector is worth around $1.5 to $2 trillion (Dawn, 2020). With proper regulation, documentation, and patronage (education), Pakistan’s real estate sector has an enormous potential to contribute towards annual GDP growth, which currently stands at a modest $314 billion (The World Bank). Countries like Pakistan should promote greater economic activity in the real estate sector as it will not only resolve the housing crisis of Pakistan but also allow for growth in the allied industries.

Real Estate’s Contribution To Economy

The real estate sector, which consists of housing, construction, retailing, hoteling, and renting of spaces for official or trading purposes, has gradually evolved into an important source of economic growth in Pakistan. Real estate can be the backbone of any country’s economy. In Pakistan, more than 200 industries depend on real estate such as cement, timber, building, sanitary fittings, glass manufacturing, steel, furniture, paint, plastics, electric fittings, cables, and electronics. The combined contribution of construction and housing sectors to the country’s GDP has been consistently higher than 9 percent (The Nation, 2020). Real estate offers a sustainable income source with potential for capital appreciation and diversification. As GDP grows, real estate values also grow and provide a direct way to participate in the growth of economies. Successive governments have primarily overlooked the real estate sector in the past, and an absence of a proper regulatory framework stunted the sector’s growth and potential. The incumbent government has now decided to finally pay heed to the sector and formulate a plan for its revival, ultimately elevating it to the industry level.

Potential of Real Estate

Pakistan’s real estate market capitalisation is valued at over $1 trillion (Dawn, 2020). This justifies the sector’s worth more than three times that of Pakistan’s GDP. Pakistan also received $21.8 billion in remittances in 2019 (The News, 2019). According to a World Bank report, an increase in foreign investments and remittances directly relates to the worth of real estate in a country (Khurram, 2020). As most of the overseas Pakistani’s usually invest in real estate, as running a business from overseas is not easy in Pakistan, the sector is poised to experience exponential growth in the future. Lastly, real estate is also a rewarding career path for the youth of this country. As the market becomes more and more saturated with business degrees, real estate provides an opportunity to extract immense growth from Pakistan’s economy.

Pakistan’s real estate sector shows promise of exponential growth in the future. Considering the huge unmet housing demand of Pakistan, conservative estimates put the country’s housing backlog at 9 million units, increasing annually at a rate of 300,000 units (The News, 2020). It cannot be fulfilled without growth in the construction and housing finance sector. Recently, Pakistan faced lockdowns due to the spread of covid-19, but the real estate sector was pushed to open first as it employs the largest number of the skilled and unskilled labour force of Pakistan. This is an eloquent testimony of how the real estate industry can be the backbone of a country’s economy.

In the past, overseas Pakistani’s remained reluctant to invest in Pakistan’s real estate due to outdated laws and regulations. It was also required for them to visit in person for transfers and allotments. But, since 2018, the government has started taking steps to encourage overseas investment by introducing digital accounts for easy transfer of payments and stringent regulations on newly marketed real estate projects to prevent fraud. Recently, the government has approved the development of a real estate regulatory authority which will regulate the realty sector and ensure transparency in real estate transactions.

Tourism is also an important industry which has a strong correlation with the real estate sector.  In the past few years, tourism has observed exponential growth in Pakistan and in 2019, tourist traffic increased by 317 percent with Punjab taking 95 percent of that growth (Ikram, 2019). This is expected to attract investments in the sector, and uplift real estate value in previously unexplored areas of Pakistan. This is further complemented by the fact that Pakistan has jumped up by 28 positions on the favourable business environments index given by the World Bank report (Dawn, 2019). The twin indicators suggest that real estate will have a bright future in Pakistan and eventually may become one of the largest contributors to its GDP.

Pakistan is also experiencing an increase in demand for premium housing and secure living areas. Gated communities that offer all amenities alongside recreational and third places are gaining immense popularity among local and overseas Pakistanis and intriguing builders and property development companies to establish more of such facilities. These not only boost construction and provide for housing to an over burgeoning population; it also stimulates buying and selling of land and revenues for the government.

One significant factor which pushes real estate to the centre of Pakistan’s economic future is China Pakistan Economic Corridor (CPEC). Special economic zones (EEZ) will be constructed under the project with cities like Multan becoming a major hub of business activity. This will generate demand for housing and commercial land development in these designated zones and will ultimately lead to a boost in the real estate sector. The projects under CPEC have already added to the energy sector of Pakistan and the up-gradation of railway lines are also on the table, but with the addition and up-gradation of motorways, newer areas will become accessible and open to the real estate market. According to Shafiq Akbar, CEO Graana.com, Pakistan is among the few countries whose real estate sector has ample room for growth as only 0.5 percent of the country’s area falls under planned land (The Express Tribune, 2020).

Conclusion

Real estate has a large potential to become the largest contributor to Pakistan’s GDP. An excess of 200 industries come under the umbrella of real estate. Growth in this sector will not only solve the housing crisis of Pakistan, but it will also create massive employment opportunities for the youth of Pakistan. There are several reasons why real estate shows potential for growth through areas such as tourism and CPEC related development. Pakistan should formulate a strategy for tackling the problems which investors and buyers are currently facing in the realty market. Transparency and regulation of real estate will always remain building blocks for the future growth of the realty sector.

Bibliography

Dawn. (2019, October 25). Pakistan jumps 28 spots on the World Bank’s ease of doing business ranking. Retrieved from Dawn: https://www.dawn.com/news/1512680

Dawn. (2020, July 13). Indicators pointing south for real estate prices. Retrieved from Dawn: https://www.dawn.com/news/1568592

Ikram, J. (2019, September 30). Tourist traffic witnesses sharp increase in five years. Retrieved from Dawn: https://www.dawn.com/news/1508132

Khurram, S. (2020, March). The real estate in Pakistan: Prospects and challenges. Retrieved from The Nation: https://nation.com.pk/15-Mar-2020/the-real-estate-in-pakistan-prospects-and-challenges

Statista. (2020). Distribution of gross domestic product (GDP) across economic sectors Pakistan 2019. Retrieved December 29, 2020, from Statista: https://www.statista.com/statistics/383256/pakistan-gdp-distribution-across-economic-sectors/#:~:text=Distribution%20of%20gross%20domestic%20product%20(GDP)%20across%20economic%20sectors%20Pakistan%202019&text=In%202019%2C%20agriculture%20contributed%20ar

The Express Tribune. (2020, July 5). Real estate can drive Pakistan’s economy. Retrieved from The Express Tribune: https://tribune.com.pk/story/2253364/real-estate-can-drive-pakistans-economy

The Nation. (2020, January 6). How 2020 can be the year of transformation for Pak real estate industry? Retrieved from The Nation: https://nation.com.pk/06-Jan-2020/how-2020-can-be-year-of-transformation-for-pak-real-estate-industry

The Nation. (2020, March 15). The real estate in Pakistan: Prospects and challenges. Retrieved December 29, 2020, from The Nation: https://nation.com.pk/15-Mar-2020/the-real-estate-in-pakistan-prospects-and-challenges

The News. (2019, July). Overseas Pakistanis remit $21.84 billion during FY19. Retrieved from The News : https://www.thenews.com.pk/latest/496564-overseas-pakistanis-remit-2184-billion-during-fy19

The News. (2020, March 8). Real (estate) issues. Retrieved from The News: https://www.thenews.com.pk/tns/detail/624795-real-estate-issues

The World Bank. (n.d.). GDP growth (annual %) – Pakistan. Retrieved December 29, 2020, from The World Bank: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=PK

Research Questions

  1. What is the real estate sector’s contribution to Pakistan’s economy?

  2. What potential does the sector hold for the future of economic growth in Pakistan?

  3. How can Pakistan enable its real estate industry to generate income for Pakistan effectively?

Key Takeaways

  1. Pakistan’s market capitalisation of real estate is valued at over $1 trillion.

  2. With proper regulation, documentation, and formal development of skill sets, the real estate sector in Pakistan has a large potential to contribute towards annual GDP growth.

  3. More than 200 industries depend on real estate such as cement, timber, building, sanitary fittings, glass manufacturing, steel, furniture, paint, plastics, electric fittings, cables, and electronics.

  4. Pakistan faced lockdowns due to the spread of COVID-19, but the real estate sector was pushed to open first as it employs the largest number of the skilled and unskilled labour force of Pakistan.

  5. Tourism is also experiencing exponential growth in Pakistan. The sector saw an increase in tourist traffic by 317 percent in 2019 with Punjab taking 95 percent of that growth.

  6. Pakistan is also experiencing an increase in demand for premium housing and secure living areas.

  7. CPEC is adding to the communications networks including railway lines and highways whereby newer areas will become accessible and open to the real estate market.

  8. Pakistan is among the few countries whose real estate sector has ample room for growth as only 0.5 percent of the country’s area falls under planned land.

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