Real estate potential stands at $2.11tr

Experts call for tax breaks, subsidies for affordable housing to spur growth

KARACHI:

Pakistan's real estate sector is set for a dramatic expansion in 2024, driven by a sharp rise in demand for residential properties. Market volume is expected to hit $1.49 trillion, boosting economic recovery, urbanisation, and infrastructure development. With favourable government policies, the sector could reach a total value of $2.11 trillion, presenting lucrative opportunities for investors.

To ensure this growth, experts are calling on the government to introduce a variety of incentives. These include tax breaks, streamlined regulatory processes, and subsidies for affordable housing. Investment in infrastructure, fostering public-private partnerships, and encouraging foreign investment are also seen as critical to sustaining momentum and attracting further capital.

Rather than focusing solely on industry-specific measures, experts emphasise broader macroeconomic actions.

These include reducing interest rates, stabilising the political environment, and liberalising tax regulations. Ireland's successful policies could serve as a model for Pakistan.

As experts point out, these changes would not only enhance the real estate sector but benefit the entire economy. As an analyst noted, "To sell something, the people who are going to buy it need to have money in their pockets."

Strong growth in residential real estate

Leading this growth is the residential sector, which is expected to achieve a market volume of $1.49 trillion. The residential sector is set to experience a Compound Annual Growth Rate (CAGR) of 7.04% from 2024 to 2028, potentially reaching a market volume of $2.77 trillion by 2028.

This rapid expansion highlights the sector's immense potential for investors and developers.

A critical focus on affordable housing aims to address a significant gap: Pakistan has a housing demand of 10 million units but faces a supply shortfall of 4.5 million units.

This shortage is shaping government policies, developer strategies, and investment flows, making affordable housing a cornerstone of the sector's future.

A social and economic imperative

The emphasis on affordable housing addresses a vital social issue, providing millions with access to quality living conditions while contributing to social stability. Understanding market trends and opportunities is essential for both local and international investors to make informed decisions, driving further growth and development in this key area.

"Owing to economic recovery, favourable government policies, and incentives, Pakistan's real estate market is poised to reach historic highs," said Usman Suhail, Market Trend Strategist and Analyst. "Investors and developers can capitalise on the projected 7.04% CAGR by conducting thorough market research, focusing on sustainable development, and investing in affordable housing. Strategic partnerships and diversified investments will help maximise returns, as the sector is expected to reach a volume of $2.77 trillion by 2028."

Despite the pressing need for affordable housing, Suhail noted that builders and developers have largely ignored this segment due to lower profit margins, high costs, and regulatory challenges.

Even though the country faces a demand of 10 million units with a 4.5 million-unit supply gap, high land and construction costs, combined with inadequate government support, have deterred investment in affordable housing.

This has forced many people to continue renting homes, especially after the 2005 stock market crash, when investors shifted billions of rupees into real estate, doubling the prices of residential and commercial properties.

Investor sentiment and market risks

Ahmed Saljouk, Real Estate Expert and Director of Finance and Development at Alif Holdings Pvt Ltd, discussed the importance of identifying profitable market trends and the need for careful diversification.

"All business involves a certain level of risk," he said. "Why would investors take any risk at all when they can park their money in a bank and earn a 15-16% return after taxes, risk-free? The recent interest rate cut by the State Bank of Pakistan (SBP) is a step in the right direction."

However, Saljouk acknowledged that attracting international investors remains a challenge due to Pakistan's economic ratings by agencies like Moody's, coupled with political instability and fears of further rupee devaluation.

"For local investors, interest rates are the key factor influencing market trends. As soon as rates drop to single digits, the real estate market will gain momentum," he explained.

The challenge of affordable housing quality

When it comes to affordable housing schemes, Saljouk commented on the difficulty of balancing affordability with quality. "The terms 'affordable' and 'quality' are not easily reconciled, especially now, when affordability seems to have been thrown out the window," he remarked.

He emphasied that stimulating the market requires more than just making things cheaper. "It's about providing value. The government needs to focus on policies that put more money in people's pockets," Saljouk concluded.