Introduction
Real estate has long been regarded as one of the safest and most profitable long-term investment options worldwide, and this sentiment holds true in Pakistan as well. Despite various investment opportunities in the country, real estate continues to be a favoured choice among investors due to its unique benefits and potential for substantial returns. Starting from its tangible asset value and stability to appreciation potential and rental income opportunities, real estate offers a solid foundation for steady growth. Additionally, leveraging options, tax benefits, and the growing middle-class population further enhance its allure, making real estate an attractive avenue for building lasting wealth in the country. In this blog, we will explore the reasons why real estate is still considered the best long-term investment in Pakistan.
Reasons Why Real Estate is Still Best Investment
Tangible Asset with Intrinsic Value
Unlike many other investment avenues, real estate offers investors a tangible asset with intrinsic value. Land and properties have inherent worth that can withstand market fluctuations and economic uncertainties. As the population grows and urbanisation increases, the demand for land and housing remains consistent, ensuring the long-term value of real estate investments.
Stability and Predictability
Real estate investments provide a level of stability and predictability not often found in other investment options. While stock markets and financial instruments can be highly volatile, property values generally appreciate steadily over time. This makes real estate an attractive choice for risk-averse investors seeking secure and predictable returns.
Appreciation in Value
Historically, real estate prices in Pakistan have shown a general upward trend over the long term. While short-term fluctuations may occur, the overall trajectory of property values tends to appreciate, offering investors the potential for significant capital gains. As urbanisation and population growth continue, the demand for housing and commercial spaces is likely to increase, further driving property values upwards.
Hedge against Inflation
According to the statistics bureau, Pakistan experienced a record-breaking national annual inflation rate of 37.97 per cent between 2022 to 2023, marking two consecutive years of such high inflation. Although this increasing Inflation erodes the purchasing power of money over time, real estate has proven to be an effective hedge against inflation. As prices rise, the value of real estate also increases, protecting investors from the impact of rising living costs and ensuring their wealth retains its value in the long run.
Rental Income
Real estate investments offer the opportunity for rental income, providing a consistent cash flow to investors. In Pakistan, the rental market is robust, and with the increasing urban population, the demand for rental properties remains high. Rental income not only covers maintenance costs but also generates additional passive income for investors.
Leverage and Financing Opportunities
Real estate investments in Pakistan often come with the advantage of leveraging, allowing investors to use borrowed funds to purchase properties. This leveraging potential enables investors to acquire more valuable properties with less initial capital, maximising potential returns. Additionally, banks and financial institutions offer competitive mortgage rates, making real estate investment more accessible to a broader range of investors.
Diversification
Diversification is a key principle in successful investment strategies. Real estate offers investors the opportunity to diversify their portfolios by adding an asset class that behaves differently from stocks, bonds, or mutual funds. This diversification helps spread risks and reduces the overall volatility of an investment portfolio.
Tax Benefits
The Pakistani government incentivizes real estate investment by providing tax benefits to property owners and investors. These benefits include tax deductions on mortgage interest, property tax reductions, and capital gains tax exemptions under certain conditions. Such favourable tax treatment enhances the overall profitability of real estate investments.
Demand-Supply Imbalance
Pakistan faces a persistent demand-supply imbalance in the housing market, especially in urban areas. According to conservative estimates, the current housing unit backlog stands at approximately 6 million units, and it grows by an additional 270,000 units each year (SBP, 2016). The growing population, rapid urbanisation, and limited supply of affordable housing create a favourable environment for property value appreciation. This demand-supply gap ensures that real estate investments have the potential for attractive long-term gains.
Growing Middle-Class Population
Pakistan’s middle-class population is expanding, leading to increased housing demand. As more people move into cities for better job opportunities and lifestyle, the demand for residential properties is expected to rise, which bodes well for real estate investors.
Wealth Preservation and Legacy Planning
Real estate investments serve as a means of wealth preservation and legacy planning for future generations. Land and properties can be passed down as valuable assets to heirs, ensuring a lasting financial legacy for families.
Cultural and Emotional Significance
Real estate holds cultural and emotional significance for many Pakistanis. Owning a home is considered a milestone and a symbol of stability and success. This emotional connection to real estate further reinforces its appeal as a long-term investment option in the country.
Real Estate Investment in Pakistan
The real estate sector in Pakistan holds immense potential for investment, making it an attractive option for both domestic and foreign investors. With a rising population, rapid urbanisation, and a growing middle class, the demand for housing and commercial properties continues to soar. This increased demand is expected to drive property prices higher, offering the potential for substantial capital appreciation. Additionally, rental income from residential and commercial properties remains a reliable source of cash flow, enhancing the attractiveness of real estate as a long-term investment option. The government’s initiatives to promote the construction industry and provide tax incentives further bolster the sector’s appeal. Moreover, ongoing infrastructure development projects, such as the China-Pakistan Economic Corridor (CPEC), are anticipated to stimulate real estate growth in key cities and regions. It would be accurate to state that the real estate market of Pakistan and the China-Pakistan Economic Corridor (CPEC) share a close linkage. Research conducted by the Harvard International Development Research Department indicates that the annual development rate in Pakistan is projected to increase to 5.07% over the next decade. As Pakistan’s economy continues to advance, the real estate sector stands poised to deliver promising returns and diversification opportunities for investors seeking a stable and profitable investment avenue.
Conclusion
In conclusion, the real estate market in Pakistan offers a range of advantages that make it an attractive long-term investment option. From its stability and appreciation potential to the opportunity for rental income and tax benefits, real estate continues to be a favoured choice among investors seeking steady and profitable returns in the country’s dynamic economic landscape. However, like any investment, thorough research, and careful consideration of market conditions are essential for making informed decisions and maximising the potential benefits of real estate investment in Pakistan.
This article is written by Waqar Ahmad. Waqar is a Research Analyst at the Iqbal Institute of Policy Studies (IIPS).
References
- https://www.sbp.org.pk/departments/ihfd/pub.pdf
- https://sapphireproperties.com.pk/cpec-impact-on-real-estate-market-of-pakistan/
- https://www.aljazeera.com/news/2023/6/2/pakistan-inflation-hits-record-for-second-consecutive-month#:~:text=The%20country’s%20year%2Don%2Dyear,bailout%20talks%20remain%20in%20limbo.
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