PAKISTAN'S REAL ESTATE SECTOR HIT BY GLOBAL RECESSION
May 11 - 17, 2009
The real estate sector in the country has been affected by multiple reasons including high inflation, decrease in remittances by overseas Pakistanis, negative effects to the country's economy and poor return on real estate business.
The local real estate market was also hit by the global recession, which shows no sign of easing and in fact has further threatened the world economy.
According to real estate agents, owing to the increasing demand of small house units of 3-5 Marla, there exists tremendous investment opportunities in the real estate and housing sector in the urban areas of Lahore.
Experts believe that demand of houses would significantly increase within next few years. Housing backlog stood at 4.30 million in 1998 which, according to current projections, stands at 8.8 million. About 350,000 housing units were established in 2006 with an investment of Rs 150 billion plus cost of land for the construction.
The Federal and Punjab governments have also planned construction of small housing units that will give boom to the construction industry. It may be mentioned that domestic cement demand in 2006-07 was 21,034,278 tons. Per capita cement consumption was 137 kg while immense potential was available for cement export to earn huge foreign reserve for the country.
An expert in the housing and construction industry told PAGE that the whole world, especially the west and UAE, was badly affected after the real estate sector collapsed.
They said every fourth house in the west was at default mainly because banks had failed to secure loans and customers had failed to pay debts. "However in Pakistan, loans are granted only for house purchase or renovation of houses and then again they are secured and guaranteed," they added.
"The House Building Finance Corporation (HBFC) grants loans only to buy property in a project that has already been made. Where will a borrower go if the house is already standing and it can be auctioned off in case a customer turns into a defaulter?" they added.
The real estate meltdown had taken place in the west and the UAE, as projects were being made purely on investment basis due to which there had been more of supply than demand. "In Pakistan, we already have a backlog of 8.8 million houses at the lower and middle income level, so if housing projects are introduced here, then usually there is a tremendous response to them too, they said.
They said: "Despite the fact that we bristle with the highest interest rates and lending rates, the shortage of houses always create a healthy demand in the market."
According to them, the government could aid to uplift the real estate sector but appeared to remain uninterested. The real estate sector in the country has been affected, as developed residential areas have witnessed a minor decline of up to 10 per cent whereas the developing areas have been affected by 15-20 per cent.
They explained that the recession led to prices remaining either stagnant or reducing as demand for properties also dipped. They also said that many overseas Pakistanis had been affected by the recession and they had also not invested into the country in the real estate sector.
The decline in inflow of capital from abroad also led to their taking out less money for property purchasing, thereby adversely influencing property prices, they added.
As the global economic environment continues to deteriorate, access to international capital markets looks to become even more difficult, and risks to both exports and remittances have increased. The changing economic environment thus has serious medium-term implications, particularly for growth prospects, given the country's diminished ability to finance even moderate fiscal and external account deficits, they added.