Pakistan’s real estate is always on the radar of foreign and Pakistani investors, as it’s one of the high-yielding investment sectors of the country. But are you sure this boom will continue in 2023?
Talking about commercial property investment in Pakistan, this asset class is often viewed as riskier than its residential counterpart. However, the earlier one holds the most benefits, both in terms of profits and returns.
You may ask why? Because, here, there’s a high demand for commercial real estate investment opportunities.
Credit goes to the improved security situation, increase in government support, and better regulatory policies. All of these win the confidence of local and foreign business enthusiasts and investors.
Also, there’s a surge in the country’s technology exports, encouraging youth to invest in startups. The more business activity in the country, the more the demand for commercial spaces, like corporate offices, warehouses, and retail outlets.
So, if you’re wondering, is commercial property a good investment? So, the answer is simply YES.
Fortunately, according to an online portal, the searches for commercial property increased by 78% in the last year. Most of these searches were from big cities, including Karachi, Lahore, and Islamabad. Therefore, these cities are the best for property investment in Pakistan.
Commercial Real Estate Trends in Pakistan 2023
Real estate trends in Pakistan are changing with many new real estate projects introduced by emerging and reputable builders and developers. Therefore, a plethora of investment opportunities for local and foreign investors.
The country is also on the outlook for sustainable urban development, while the government is encouraging builders and developers to adopt the concept of vertical cities. The concept revolves around developing high-rise properties that take up little space and are environment-friendly.
This rapid expansion of real estate will lead the country toward a significant economic recovery which is expected in 2023.
Well, when it comes to real estate investment, one should listen to experts and analysts. So, for better decision-making, we have gathered a list of some foreseen trends that Pakistan’s real estate sector will be witnessing in the coming year.
Here’s the expected future of real estate in Pakistan.
Growth Rate of Commercial Real Estate
According to a report, in 2021, Pakistan’s real estate growth rate was 3%, whereas, two years before, it was 7.1%, and a year later, the growth rate surged to 5.3%.
Here’s a quick round-up of real estate highlights surveyed between 2021 – 22.
- Real Estate Activities recorded a growth rate of 3.7 percent with a construction share of 13.4 percent.
- Being the second-highest share (around 18 percent) in Private Sector GFCF, real estate activities have registered a growth of 35 percent.
- The share of employment in the construction sector has increased from 8.0 percent to 9.5 percent between FY19 to FY21.
- Construction posted a growth of 3.1 percent.
- Service and GDP contribution by real Estate Activities (OD) have a growth rate of 9.6% and 5.6% respectively.
- Iron & Steel production jumped by 16.5 percent. Whereas billets/Ingots, mainly used in the construction sector, grew by 32.8, and H/C.R.Sheets/Strips/Coils/plates increased by 7.9 percent.
Price Elasticity of Commercial Real Estate
The demand for commercial setups in Pakistan, especially for co-working spaces, has increased dramatically, especially after the pandemic. Because shared spaces allow companies to save on several costs, including infrastructure, utilities, equipment, stationaries, and custodial services.
According to Jones Lang LaSalle (JLL), by 2024, more than 30% of all existing office spaces will be converted into co-working or flexible spaces. Also, a study on global co-working estimated that by the end of 2024, more than 5 million people will be working in shared spaces.
In Pakistan, the trend of co-working spaces is also on the rise – in 2020, there were 200+ shared working spaces, which was 70 times more than the 2016 statistics. Here in Pakistan, the co-working space is the first choice for freelancers, business owners, and start-ups alike.
Demand vs. Supply of Commercial Real Estate in Pakistan
With Pakistan’s population growing exceptionally coupled with land scarcity, it is highly unlikely that commercial property prices will go down. The entrepreneurial population is growing, and so is the demand for office spaces and other commercial propositions.
This indicates that property prices in the commercial sector will rise.
Furthermore, the real estate sector is one of Pakistan’s fastest-growing industries, supporting 100+ sectors directly or indirectly. With the rise of the real estate industry, the expansion of various other industries has also been witnessed. Which means more investment options for domestic and international traders.
Past Analysis of Commercial Real Estate in Pakistan
In the case of commercial real estate, 2021 was chaotic, but it’s far from over, It means the real estate prices are back on the rise and are unlikely to fall anytime soon. American industrialist, Andrew Carnegie, once said, “90% of millionaires own real estate,” debunking all the myths about the downfall of real estate values.
Despite COVID-19, which has affected almost all sectors of the country, investors in Pakistan continued to invest. They consider the low-interest rates as an opportunity.
As the new year begins and the negative effects of the pandemic have also subsided, the returns of real estate have also improved significantly. Decades have shown that commercial real estate investments last longer.
Tax Laws in Commercial Real Estate
Previously, the CGT or Capital Gains Tax – a tax on the profit earned by the seller on the sale of a property, was based on the length of ownership. Now, there will be no CGT if you sell your property after three years.
Unfortunately, this technique negatively impacts the holding period an investor keeps the property, but luckily, they found their way out. Now it is easier for investors and property buyers to save money for years.
Devaluation of Pakistani Currency
As we know that the value of currency for each country is determined by the demand and supply of the money reserved in the country. And, devaluation is when a country’s currency value is decreased under a fixed exchange rate system.
Currency devaluation depreciates the purchasing power of the national currency in relation to commodities, like gold or foreign currencies. Devaluation is adopted as an alternative to depreciation.
According to property analysts and economists, the weakening currency is good for the economy as it pushes exports. This ultimately increases employment and creates a growth and development environment.
Impact of Currency Devaluation on the Real Estate Sector
During currency devaluation, real estate prices are often beyond the reach of the average person, at times it goes beyond the middle-income bracket. In turn, a subsequent misjudgment is created that causes a loss of national confidence, and eventually, leads to capital flight.
Also, wealth destruction is possible due to currency devaluation, which negatively affects the return on investment (ROI) which means a loss of confidence among real estate investors and their investment portfolios.
Impact of Currency Devaluation on Foreign Investment
Foreign investment is essential for the growth of the real estate sector. For underdeveloped countries, like Pakistan, foreign gifts, subsidies, aid, etc., do make a difference, especially at times like currency devaluation.
In currency crises, investors are reluctant to invest for a fear of losing their money, often they delay their investment plans until the currency gets stable.
For 2023, the impact of currency devaluation on real estate seems far-sighted. As the Government and the State Bank of Pakistan working hard to regulate their policies and to achieve stability in the Pakistani rupee. They have strict plans and active control policies to limit inflation and currency devaluation.
And, the most Profitable Commercial Property in 2023 will be...
Based on the previous record, the future of Pakistan’s commercial real estate will witness an uptrend cycle that can last 2-4 years.
With upcoming commercial projects in Islamabad, Karachi, and Lahore, real estate in Pakistan is at the top of the expansion phase, nearing its peak. Though the negative market sentiments are also lurking, that can be dangerous reverse to the trend.
However, with hopes and wishes, real estate will continue to grow in the coming years, the best thing is that Pakistan is attracting savvy investors around the globe. They are the real risk-takers and understand the country’s real estate dynamics too.
