Year 2016 was predicted to be a very promising one for Pakistan’s real estate industry with good reason. During 2015, investment in residential property (flats, houses & vacant plots) rose by 5 to 7 percent, while in commercial property (counting standalone shops, showrooms, retail and office space), there was a rise of 15 to 20 percent across the country, despite the levy of capital gains tax, capital value tax and stamp duties in the Federal Budget FY2015.
Industry adepts were confident that investment will continue to rise during 2016 due to increased investor interest and consumer confidence in the property market, an enhanced security condition also the government’s enabling strategies for the sector. The Federal Budget FY2016 brought much needed tax relief to the sector. The minimum tax builders were required to pay for the construction and sale of residential buildings was suspended; bricks and crushed stone were given a sales tax exemption until June 30, 2018, and Customs duty on the import of construction machinery was declined to 10 percent.By all predictions, the country’s real estate market – on the back of increased FDI, CPEC (China-Pakistan Economic Corridor) infrastructure projects and a robust demand for housing – was predicted to reach new heights during 2016. However, this optimistic viewpoint took a turn for the worse with the announcement of the Federal Budget FY2017 in June, 2016. Property taxes were raised and the outdated district commissioner (DC) rates for property valuation were replaced through the FBR determined market values for documentation and taxation purposes.
Since residential and commercial properties are not documented at their present market values in the country, it is an impossible undertaking to determine the value of the real estate sector. However, experts also estimated that the industry is worth approximately $700 billion. Real estate and construction, together, account for almost 2 percent of Pakistan’s total GDP. Not only does it generate a high level of direct employment, the sector also stimulates demand in greater than 250 ancillary sectors, counting cement, paint, steel, brick, building materials and consumer durables, to name a few.
In the country, when bullish trends are recorded in the market, monthly growth rates of greater than 10 percent are registered, which are unprecedented. This was the case post 9/11, when FDI by expatriates rose, and again, between 2011 until the announcement of the Federal Budget FY2017. It is also said that if rural to urban migration continues at the existing rate, urban population is predicted to stand 95.62 million by 2025, taking the urbanization level to an unprecedented 53.3 percent. It is also said that the trend of buying luxury flats/apartments has risen by almost 9 to 9 percent in the country in the last decade, mainly because of a rising demand for secure, well-maintained housing units; it is therefore not surprising that between 2010 and 2016, flat prices increased by 120 percent, while houses recorded a much slower rise, at 80 percent. In fact, in the last 5 years alone, the demand for flats has gone up by nearly 30 percent, which has given increase to a growing number of newly constructed high-rise luxury flats in Lahore and Islamabad.
Despite the Lahore Ring Road issue, Bahria Town continued to remain stable. The hot choice for investors was Bahria Orchard, which saw growth in the prices of both 10-Marla and 1-kanal plots at 1.38 percent and 1.82 percent respectively.
Bahria Town is the exception, with a growth of 4.95 percent for 1-kanal plots, and a sharp increase for 10-marla plots with 6.10 percent. Gulberg Residencia also saw some optimistic signs with 4.82 percent growth in the prices of 1-kanal plots and 6.08 percent growth for 10-marla plots.
2017 seems to be a good year for the real estate sector in Karachi. Both Defense City Karachi (DCK) and Bahria Town Karachi (BTK) saw sharp increases for plots that were 500 square yards and 250 square yards plots. Both localities have seen a marked rise in buying and selling. Despite its saturation levels Gulshan-e-Iqbal seems to be doing well for both 10-Marla and 1-kanal plots. DHA on the other hand, only managed to see rates stay stable.
While Gujranwala has started to capture investor attention, in January its property prices remained largely stable. DHA Gujranwala saw moderate growth in the prices of 1-kanal plot files, whereas stability was the order of day for 10-marla plot files.
It is revealed that Pakistan’s urban population accounts for nearly a quarter of its total population, and is likely to grow to half between 2030 and 2040. Rapid urban population growth is causing a housing shortage. The housing gap in Pakistan is currently estimated at 9-10 million units, with demand growing at a rate of 0.7 million units every year. The urban housing shortage is estimated at 3.5-4 million units, nearly all amongst the economically weaker segments of the population. Growing inequality is well illustrated in the case of Lahore. Households at the bottom 68 percent of the income distribution can only afford 1 percent of the available housing stock, while households at the top 12 percent of the distribution can afford 56 percent of available housing. 4 million Pakistanis living in low quality housing, this includes 47 percent of Pakistan’s urban population.