An unstoppable real estate boom

Sector gets boost from RDAs, amnesty schemes, low finance cost

LAHORE:

While the past year proved to be disastrous for many segments of economy, a handful of sectors depicted exceptional growth and real estate was one such area.

While it is a sub-sector of the overall construction industry, the performance of the latter remained unsatisfactory owing to a host of reasons.

Malik Kamran, a 30-year-old Pakistani, just bought a four-wheel luxury vehicle worth over Rs10 million after making a handsome profit from real estate activities during the outgoing year 2021.

For him, the year proved to be remarkable as the market surpassed all expectations and registered a substantial growth thanks to the favourable measures introduced by the government including amnesty schemes and special incentives for construction, housing and real estate.

In general, the construction industry can act as the engine of economic growth but unfortunately it appears that only one segment of the entire industry, the real estate business, is becoming the centre of attention of foreigners. This can be gauged from the fact that the construction and housing markets were unable to post the desired results in 2021.

Investment in land is one of the easiest ways to earn sizable returns. Kamran said that inflows through Roshan Digital Accounts, announcement of amnesty schemes and low interest rates till October 2021 drove the expansion in the realty sector.

In Pakistan, purchasing a piece of land for future needs is a common practice. As a result, the realty sector grew by leaps and bounds with the announcement of several new housing societies that provided diverse opportunities to the people looking to invest in this area.

The business groups behind private housing societies remained satisfied with the government’s business-friendly measures for the realty sector.

“The real estate market is growing continuously because unpredictability in this area fetches tremendous amount of profit,” Eighteen Housing Chief Executive Officer Tarek Hamdy told The Express Tribune.

He elaborated that the Covid-19 pandemic dented every area of the economy in 2020, however, in 2021 Pakistan’s real estate sector surpassed expectations because people moved from risky assets to safe-haven investments.

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An important factor driving the growth is the unprecedented interest shown by the leadership in its development. “This resulted in announcement of measures conducive for the sector, which attracted a large number of potential investors,” he said.

“The government of Pakistan announced relief for investors and businessmen in the property market primarily to mitigate the adverse economic impact of the pandemic.”

From a foreigner’s point of view, he believed that Pakistan was an investment-friendly destination for overseas businessmen, and stressed that if the government continued to prioritise this industry, it would report historic growth and prop up the economy in the coming years.

Construction industry

Although the real estate segment witnessed robust activity in 2021, the construction industry had not been able to take off as expected by the market. In general, this sector received a blow owing to a steep rise in the cost of building material such as cement and steel.

The escalation in the cost of production, due to inflationary pressures, has put private and public sector contractors and builders in a tight spot.

Public sector contractors are looking forward to getting government’s support while highlighting that they cannot deliver on the bids agreed earlier because they did not take the sharp hike in input costs into account.

According to the builders, the big jump in raw material prices has placed the low-cost housing project of the government in jeopardy, which is under construction under the public-private partnership (PPP) mode.

“For us, the year is ending on a disappointing note because the dream of low-cost housing may not be fulfilled,” said Association of Builders and Developers of Pakistan North Zone Chairman Akbar Sheikh.

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Above all, the recent upward revision in land valuations by the Federal Board of Revenue “is proving to be the last nail in the sector’s coffin”, he lamented.

“Tax adjustments, amnesty schemes and the mortgage finance facility turn out to be futile exercises because their implementation in a prudent manner is lacking,” he said.

Such drawbacks are some of the reasons why the prime minister’s dream of providing five million affordable housing units to the low-income segment may not be realised.

He pointed out that the Naya Pakistan Housing and Development Authority was also not able to deliver the expected results.

According to the State Bank of Pakistan, the country is facing a shortage of around 12 million housing units.

While the private sector is the biggest contributor to the construction of housing units, it largely caters to the upper-middle and high-income groups due to which the lower and middle-income class is ignored.

“Private sector contractors are also feeling the heat of inflation as most of the units built by them in 2021 are yet to be occupied,” said a private sector developer.

The surge in prices of land and the exorbitant increase in the cost of inputs have dented the purchasing power of the middle class, which no longer opts to purchase houses. Instead, the middle class earners are investing in land with an aim to build a residential unit a few years later.

He added that all builders, be they private or those working for the government, were playing a vital role and there was a need to support them. “If we, as private contractors, are unable to deliver units on old agreements, then how can a builder working with the government under the PPP mode build affordable housing schemes,” he questioned.

According to him, the whole industry is passing through the saturation phase.

Published in The Express Tribune, December 28^th, 2021.

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