Measuring Real Estate’s Impact on the Economy: An Overview

Measuring Real Estate's Impact on the Economy: An Overview

In order to calculate the real impact of Real Estate on the economy, it is extremely vital to understand the real connotation of the word. Real estate refers to land and any physical structure and improvement attached to it, including residential, commercial, industrial, and agricultural properties. Another form of real estate is a special purpose real estate, which includes properties serving specific functions and specialized uses like education and health facilities, religious buildings, and government-owned properties. Every residential, commercial, industrial and agricultural real estate encompasses a wide range of assets, including single-family houses, apartments, condominiums, townhouses, vacation homes, office buildings, retail spaces, shopping centres, hotels, warehouses, industrial buildings, factories, warehouses, distribution centres, industrial park, farmland, ranches, orchards, and livestock facilities.                                                                                                               

This broad and diversified makeup of real estate signifies its vitality in relation to the impact it creates for the economy, as reflected by the total value of the world’s real estate surpassing USD 300 trillion in 2020. In terms of its contribution to GDP, employment, and capital formation drives economic activity through construction, sales, leasing, and property management that culminates in job creation and income generation. By providing basic needs for shelter and housing, it promises the essential service to facilitate the community in actualizing its basic compulsion that places residential real estate as the largest global real estate sector. As a popular investment asset class, it provides an impetus for increased investment and wealth creation. The investments generate income through various avenues like rental yields or lease agreements, concluding in a steady cash flow. The development in real estate also involves the construction of infrastructure, including roads, utilities and public facilities that resultantly support economic growth. The sector also plays a leading role in job creation across various professions and industries. From architects and construction workers to real estate agents and property managers, the sector provides remarkable employment opportunities, directly and indirectly, to a diverse workforce.

Real estate has also pronounced impacted revenue generation through substantial tax collection. Property taxes, sales taxes on real estate transactions, and related taxes contribute to the government exchequer supporting essential services and infrastructure development through public finances. In addition, the housing market is also closely related to the overall economy. Indicators like home sales, housing starts, and housing affordability can provide insights into the health of the real estate sector and its proportional impact on the economy. The real estate sector also holds a multiplier effect on other sectors of the economy. Construction activities can create a heightened demand for building materials, labour, and related services, stimulating manufacturing and transport industries and other professional services. Carefully analyzing these economic multipliers of real estate can help understand its broader impact on overall economic growth.  

The sector stabilises the economy through wealth creation and consumer spending and acts as a hedge against inflation. Moreover, urban development and revitalization efforts are also being supported by transforming underutilized areas into vibrant communities, attracting business and livability enrichment.

With a dire need for more than 20 million housing units by the end of 2040, a country like Pakistan offers a huge potential to boost its economic trajectory, very similar to the global residential real estate accounting for 80% of its total worth. By fulfilling the estimated demand, the total worth of Pakistan’s planned area could be enhanced to USD 2 trillion from the current value of USD 700 billion. Interestingly, almost half of the residential real estate wealth is concentrated in Europe and North America, housing only 17% global population combined. As the fifth most populous country in the world undergoing rapid urbanization, Pakistan’s residential real estate offers a massive opportunity for the country’s lacklustre economic profile to be bolstered. With its multiplier effect, the sector can help create more than 20 million new jobs in the market and allied industries. Along with the principle of increasing the country’s exports, its excessive reliance on imports could be curtailed through real estate industrial growth and local manufacturing. 

In an environment of sheer lack of planning and regulation, the sector falls short of its potential to be fully tapped. The sector demands a real transformation in terms of formulating proper regulations to curb malpractices. Access to information is another important aspect that needs to be addressed in order to revitalize the real potential of real estate in Pakistan. To this end, it is encouraging to note that PropSure Digital Solution Pvt. Ltd, under the auspices of Imarat Group of Companies, has already digitized more than 4 million planned properties in Pakistan and is adamant to proceed further in this regard. It will certainly help bring transparency and increased access to information, subsequently building market confidence and bringing enhanced real estate investment. National Development Plan (NDP), Vision 2047, by Imarat Group of Companies, is another such initiative that will support bringing vitality to the sector through need-based and demand-driven real estate projects desired to be envisioned in Vision 2047. Considering these enterprising initiatives and interventions, the real estate sector will succeed in leveraging growth with a significant amount of economic share likely to be enhanced in the near future.        

This article is written by Syed Mubasher Gillani. Mubasher is a Content Writer at the PropSure Digital Solutions Pvt Limited.



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IMARAT Institute of Policy Studies

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