Realty sector seeks relief

Says fall in remittances reflects distrust of overseas Pakistanis in construction sector

LAHORE:

Construction and real estate stakeholders and experts have asked the government to stop considering this sector as unproductive and provide relief to support the dilapidated economy of Pakistan.

They emphasised that the sector was important for the overseas Pakistanis who put their savings via remittances in that area to secure a piece of land or complete building a house for the future.

The recent decline in remittances reflected the distrust of overseas Pakistanis in the state of construction and real estate sector in general and the overall economy in particular, they added.

“There is a misconception that investment in real estate is unproductive and distracts people from investing in industrial activity,” said Association of Builders and Developers (ABAD) Pakistan (North Zone) Chairman Engineer Akbar Sheikh.

“The fact is that an average person investing in real estate will not usually invest in industrial activity as it is a totally different area where he has no expertise,” he added.

With 70% of lending to the government, banks have no appetite for lending to newcomers and small businesses. Pakistan’s stock market is also an insiders’ game and not everyone can play there.

It is a small market, estimated at only about 10% of GDP, compared to 150% in the US and 70% in India.

“Thus, stock market investment is not an alternative for real estate investment. The alternatives available for ordinary real estate investors are gold and dollar and all these have a negative impact on the economy,” Sheikh added.

The share of construction/ real estate in Pakistan’s national GDP is about 25% while construction alone is about 17%, thus acting as the second largest sector in the economy after agriculture.

“Unfortunately, the present government, especially the finance minister, has not given real estate a fair consideration and resultantly the construction sector,” he said.

Globally, 70% of the net household wealth is in real estate. This percentage is higher for the poorer segment of society and lower for the richer segment. In Pakistan, an average household would have 50% of its net wealth in real estate.

“A positive sentiment in this sector creates a general sense of wellbeing in society. The government, in its quest to increase its taxation revenue, has dampened the sentiment and damaged its political support,” Sheikh added.

The construction and real estate was the centre of economic activity during the tenure of Pakistan Tehreek-e-Insaf (PTI) government. The purpose was to fuel the stagnant economy while providing affordable houses for the ordinary Pakistanis.

Nevertheless, the affordable housing is still a dream due to high prices of land and an exorbitant rise in prices of building material.

“Markets are in trouble. Though some transactions are taking place, they are largely meant to buy a piece of land,” said real estate analyst Sheikh Ghafoor.

Market players had already withdrawn their money and invested in purchasing dollars. “Many of them have managed to secure their cash and are now waiting for things to normalise that started worsening since the current government came to power,” he added.

Private sector contractors were claiming that their work had shrunk to 70% due to the ongoing economic instability, dollar flight and global hike in input costs, he said. “The cost of constructing a one-kanal house has increased by a maximum Rs150 million,” Ghafoor said.

ABAD chairman pointed out that a healthy growth in the real estate sector over the last five years had coincided with the robust growth in remittances sent home by the overseas Pakistanis. “A sick real estate sector will surely have a negative impact on the remittances.”

Additionally, an estimated 25% of new developments in real estate are financed by the overseas Pakistanis. Specifically, the Pakistanis working in Gulf countries, who wish to return to their homeland eventually, want to purchase a house in the country as their first priority.

“The negative sentiment will force these expat Pakistanis to look for other alternatives,” he added.­­

Published in The Express Tribune, August 20^th, 2022.

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