Real estate overview: can you continue to expect record profits and high returns on your investments? As the dust settles after the elections, it is becoming clear that Pakistan’s largest growth sector is undergoing a profound transformation
By Saeed Khan Baloch
After undergoing a major recession a few years back following high speculation and manipulation, the real estate market is expected to pick up again on hopes of political stability in the country. Property experts believe that due to high volatility in the property business, a number of investors who had diverted their capital to other businesses such as currency market, stock market and bullion market could come back with return of political stability in the country. According to some real estate agents and investors, property prices have gone up nearly five to six times in metropolitan cities of the country during the last five years and land purchased at low prices five years back still gives big deals despite the recent slump in property business.
Property business has been dull for the last couple of years and in many areas there has been no increase in prices while in certain areas prices are showing a downturn. People had heavily invested in DHA, Bahria Town, and other residential schemes in Lahore and same was the case in Karachi, Islamabad, Rawalpindi and other big cities, mainly because of influx of remittances from 2001-2005, which made five to six times increase in the property and real estate prices. Many investors, after having advantage of the high prices in the real estate market two years back had ventured into Dubai market because of mounting political unrest and lawlessness in Pakistan, particularly after the increase in suicidal attacks. During the last two years, a number of real estate agencies have opened up their offices in Dubai. Levy of two percent CVT on property was also a source of discouragement for investors in the real estate market. Now the smooth elections in the country have once again raised hopes for boom in property markets. Market experts foresee improvement in the situation after formation of democratic governments in the center and in the provinces. Property experts believe that a stable political situation
and investor-friendly economic policies will give a boost to the market. Many banks had also limited their financing for housing after cases of defaults. Moreover incidents like October 18 bombing in a PPP rally in Karachi, imposition of emergency in the country and subsequent murder of Benazir Bhutto further added to the recession in property business across the country. However despite uncertainty genuine investment is still pouring in and, though limited, people are reaping good profits. It is believed that the real estate agencies that are in Dubai would also return with formation of stable government in the country. Moreover due to recession and political turbulence in the country, especially after the arrival of Nawaz Sharif and Benazir Bhutto in Pakistan, people who were on sidelines with a wait-and-see approach could also re-enter the market, which will also improve the liquidity position.
Many builders who had thronged the Dubai market some time back and introduced various residential schemes could also come back. They had generated huge amounts of money from booking in the boom period and later following inexplicable state of affairs in real estate business on account of various scams, launched schemes in Dubai. Interestingly, the recent general election, where it generated activity in other businesses, also made some people extremely rich in terms of land deals. It has been learnt that in Karachi, Lahore and some other big cities a number of contesting candidates had sold their properties in order to finance their election campaigns. Some real agents claim that a number of candidates in Karachi-the commercial hub of the country-had reportedly traded their properties in Dubai. There are also reports that since property business has turned highly volatile in metropolitan cities, therefore, small cities could be more lucrative from returns point of view. The reports suggest that long-term investors are now more inclined to move towards small cities and prefer making investments there. Some builders have now started residential schemes in small cities and towns also. If we look at the governments’ role in development of the housing sector, over the years it has evolved from predominantly provider to essentially a facilitator of housing facilities. The previous government introduced wide-ranging reforms in the real estate sector, which are contained in the National Housing Policy (NHP) 2001. The provinces of Pakistan are signatory to the National Housing Policy 2001, which
has also highlighted the need to reduce real estate specific levies, amendment in rent control laws, implementation of an effective centralized land registration system etc. A lot of the recommendations of
NHP 2001 are echoed in the detailed recommendations of the Housing Advisory Group (HAG) formed by the State Bank of Pakistan. The government authorities believe that implementation of these recommendations will increase both debt market and capital market financing to the real estate sector. It will also create an environment for higher quality buildings for rental purposes. However, they say it is the private sector that has to play a pivotal role in the provision of residential facilities to the general public and the government will provide an enabling regulatory, legal and financial environment for this purpose. Close coordination and consultation will result in designing and monitoring effective policies, regulations, systems and procedures.
According to official statistics, in Pakistan, in the year 2005, there was an estimated backlog of six million housing units and the incremental housing need during 2005-10 is estimated to be three million housing units. Thus, an increase in construction of housing by nearly half a million, i.e. from 300,000 units in 2005 to 800,000 units by 2010 will only cater to the incremental needs during the corresponding period.
But the government functionaries’ saying is right that no government could alone meet the housing deficit which has been building up for the decades unless the private sector plays its role. Construction as a sector needs active encouragement because it provides large employment possibilities with backward and forward linkages with over 40 industries. Very clearly, the formal construction sector in Pakistan is at an embryonic stage; therefore, public private sector partnership is the need of the hour for its development on modern lines.
Saeed Khan Baloch is a freelance writer with vast experience in the field of print media. He also contributes to foreign media and his expertise is in business, economics and related issues.
This article was originally published in the print edition of Valuemag, issue 2, June 2008.