In the last decade, there has been a significant change in the investment sector of Pakistan. It has considerably progressed after the pandemic hit the economy. People from all backgrounds are taking interest in different investment opportunities, especially real estate.
The Real Estate industry is a big sector with a large number of other industries such as steel, interior design, architecture, timber, etc. They immensely contribute to the GDP of the economy. Pakistan’s development sector contributed $314 billion in growth in the country’s GDP every year.
The real estate industry had gone through ups and downs, but 2023 is the year of financial prosperity.
Reality of the Real Estate Market
Islamabad, the capital city of Pakistan, offers one of the best opportunities in terms of commercial and residential real estate. The presence of existing and upcoming commercial centers, like the one in Blue Area Islamabad are all set to bring corporate hubs with world-class amenities and features.
As per reports shared by the State bank of Pakistan, the combined housing and construction industry contributes almost 9% to the country’s GDP.
Let us study the factors affecting Pakistan’s Real estate in detail.
Factors Affecting the Real Estate Market of Pakistan
#1 Environmental Factors
There is a direct proportion between the environment and the property. Environment affects the worth of the property. Further, the law-&-order situation of the neighborhood also pose drastic impacts the overall status of the property. The prices depend on all these environmental factors like area, its cleanliness, pollution-free, and sewerage line aligned with standard facilities making a living/survival easy and healthy.
#2 Demographic Factors
A country’s demography has a vast impact on real estate. In Pakistan, the size of the average house is larger compared to places throughout the globe. Pakistan’s house architecture and accommodation system is well organized and mapped.
Whereas people belonging to high-income and low-income levels reside in a particular area, it will affect the market differently. Also, the purchasing power of the people will impact the market even if a specific locality has schools and amenities, so families and young people will opt to invest. Besides this, social centers, shops, and recreational centers are highly valued by young buyers/investors.
All these factors affect the prices of building materials as the prices and labor costs vary from place to place. We can gain from investing in such high-valued projects and achieve returns.
#3 Interest Rates and tax on Loans and Property
It is a fact that people prefer to avoid paying high taxes and interest rates on the property. None of us will spend extra money. Interest rates are vital in the real estate industry and its growth. Property with a high amount of tax will be reluctant to invest in that type of property.
Even the banks play an essential role. Suppose they have easy policies to give loans and payment plans so people will take loans and invest in real estate. Many banks provide property loans if the stock market performs well, so people will be more likely to invest in the real estate market.
Some taxes applicable on the immovable property for 2019-20 in the Budget are listed below.
- The withholding tax (WHT) rate on the immovable property has been lowered from 2% to 1%.
- Withholding tax (WHT) is collected on all real estate purchases, regardless of their market worth.
- Withholding tax (WHT) is collected when a property is sold after a holding period of up to five years.
- Non-filers would no longer be restricted from purchasing homes worth more than PKR 5 million.
#4 The Economy
A country’s economy is the backbone of its development and growth. Even the real estate market is dependent on its prospering economic growth. Once people have the power to purchase so, they will invest in real estate.
The real estate market and economy have reciprocal linking with each other. The economic downturn or recession has a vice versa impact on the standard of living, and people would not be in a state to invest.
Hence a suffering and falling economy is not a good sign and sight for the prosperity and well-being of the country. In reality, investments in real estate happen after being mindful of the elements such as inventory mixtures, building prices, and seasonal trends.
#5 Government Policies
Government policies are considered vital for the real estate industry. The procedures and regulations designed and implemented weigh a lot, depending on the scenario. Specific guidelines and tax reductions affect the property.
Before investing in a real estate project, one prime instruction is to connect with an authentic organization and thoroughly get prior knowledge about it.
#6 Employment Factors
Also, employment factors are influential in the real estate market of any country worldwide. These factors immensely affect the investments made by potential customers, realtors, and investors. If the employment rate is increasing in a country, several people will invest in real estate projects/plans.
#7 Technological Advancements
Technology has had a significant impact on the real estate market in Pakistan. Here are some ways in which technology has influenced the industry:
- Online property portals: Online property portals, such as Zameen and Graana, have revolutionized the way properties are bought and sold in Pakistan. These platforms allow users to search for properties based on their preferences, view property details, and connect directly with sellers or real estate agents.
- Virtual property tours: With VR technology, potential buyers can now take virtual property tours without physically visiting the location. This is particularly useful for long-distance buyers or those unable to visit properties due to time constraints.
- Online property listings and advertisements: Real estate agents and property developers now heavily rely on online platforms and social media channels to advertise their properties. They can showcase detailed property listings, high-quality photographs, and videos, reaching a wider audience in a cost-effective manner.
- Mobile applications: Many real estate companies and portals have developed mobile applications that provide users with property listings, mortgage calculators, investment insights, and other tools.
#8 Trust in the Market
Trust is evident in real estate, especially in money investment, which is tough and rugged as many fake frauds and expert scammers are flourishing in the market. A couple of deceiving low-quality projects too are built with poor services. These occurring create doubt in the people, so they fear investing.
So it is essential for real estate investors to ambassadors their plan appropriately and provide perfect guidelines clarifying the entire intent. The potential customers will feel safe and secure getting proper information/reliability. Their trust will strengthen.
#9 External Investors
The proportion of external investors has great importance in the real estate business. The more the government encourages and directs external investors, and the more the real estate industry will flourish.
As those who invest in the country bring innumerable positive resources such as knowledge, capital, technology, machinery and other add-ons. These will create efficiency and positively impact the real estate market and its projects.
#10 Budget of the Country
Apart from other factors affecting the real estate. The cost of property is entirely dependent on the Budget. If the Budget has increased the cost of essential items such as cement, bricks, and other expenses, the entire project/ plan would automatically increase.
If the government implements better regulations for the business, the costs will reduce. The investors will be confident enough to invest and bring in their capital. Hence the commercial real estate market will bring in more profits/gains to upgrade the economy in the long term. Better and higher ROI is expected in the future.
Conclusion
The real estate market is too vulnerable to economic and social changes within the country and the globe. Its values are dynamic and immensely determined by the external resources prevailing.
Before investing in any project, it is better to look at the market conditions keenly and weigh the circumstances, as the value will change according to these factors.