Whenever thinking about investing, one thing that pops up in most people’s minds is real estate. Even in the time of recessions, real estate can offer some great investment potential. While most people think that real estate investment is solely about buying homes, apartments and flats, or commercial property, there is another side of real estate that the investor can take advantage of, even with a small investment– plots and lands. There are several advantages in choosing to invest in plots and lands; and by learning more about them, one may find that this kind of investments is the right choice. There seems to be a widespread and baseless assumption among many people that investing in a vacant land is a “weak” or even pointless investment because it doesn’t generate income. Contrary to the general perception, vacant land is also capable of generating some serious cash flow and it’s one of the best investments in the world because of its hands-off nature and versatility.
Like any other country in the world, the housing sector plays vital roles both in the context of the economy of Pakistan and serving the fundamental human right of shelter. Apart from providing physical shelter, housing may have significant impact on the lives of the dwellers in terms of skills enhancement, income generation, increased security, health, self-confidence and human dignity. Pakistan, like many other developing countries, faces an acute shortage of affordable housing both in the urban and rural areas. Moreover, housing affordability is being eroded by poor land administration policies, which have resulted in very high land prices and high cost of construction that make urban housing prohibitive for lower-income groups.
Pakistanis diaspora are an asset of Pakistan as they send huge amounts of money to Pakistan. According to the State Bank, Pakistan received a record USD 21.84 billion remittances in 2019-20. Government needs to understand the fact that overseas Pakistanis only invest their money in the real estate sector as they are not able to do business in Pakistan remotely. Cumbersome procedure, imposition of high taxes on non-filer overseas Pakistanis and requirement of visiting Pakistan for the completion of property acquiring process are some of many reasons that have discouraged overseas Pakistanis to invest their money in the real estate sector. In spite of all these, this sector has experienced considerable growth in past few decades.
High population growth and rural-urban migration intensify the problems of urbanization in Pakistan. For Pakistan the problem is further aggravated by limited land supply in urban areas, lower land utilization and lack of proper policy and planning of land-use. The ever growing urban population is creating an increasing demand for space. This rapid influx of population to the main cities results in sky rocketing land prices and provides the stimulus for construction of tall buildings.
Despite current circumstances, which is dominated by the human and economic cost of Covid-19, we see a lot of economic activity in construction sector. Pakistan’s property markets will continue to reward resilient investors with superior returns. In the short-term, the impact of Covid-19 was felt particularly in terms of movement restrictions but people have come out in large numbers and now we see a lot of construction activities in all major areas of the country. Pakistan’s real estate markets offer significant investment and development opportunity.
From investment’s perspective, when someone buys or builds a piece of property, and rents it out to tenants, that property starts to earn rental income. With the high demand for accommodation and growing inflation, rent prices are always on the rise. Higher rent prices mean more income for the landlord. Compared to other investment options, the income from real estate is the steadiest.
For example; in stock exchange the amount of dividends paid by many companies often fluctuate and may not be paid every year. Bank savings (another form of investment) usually attract interest payments that may be steady but are often very small compared to the returns one can get from investing in the real estate. Because the income from real estate investments is steady and predictable, one can even plan better. Moreover, the rent one gets from the property can be used for specific projects such as paying kids’ school fees, travelling abroad or buying a new car or running the kitchen.
In Pakistan, collateral is one of the biggest obstacles faced by businesses in obtaining a bank loan or acquire machinery or equipment. When banks ask for collateral, they want borrower to provide something that is equal to or greater in value than the loan amount borrower is asking for. As per the prudential regulations of the State Bank; immovable property cannot be given as a collateral to a bank thus property can only qualify for this purposes or personal guarantees of the owners of the business. Therefore, banks usually prefer real estate as collateral because it is known to continually appreciate in value. Compared to stocks (which some banks accept), the value of a property cannot vanish overnight (like stocks). As a result, an investment in real estate means that one can use the properties one buys as a leverage to get loan from a bank and other lenders. Only very few other investments can give you the kind of leverage that real estate can.
Pakistan’s realty state has a large contribution in its economic growth. According to the World Bank estimate, the size of a country’s real estate assets constitutes around 60 percent of the country’s total wealth. Because of many financial, economic and political challenges, real estate has not performed well in recent months. But, there are high hopes that there will be high growth in the real sector in 2020-21.
With half of the population still living under the poverty line, poverty alleviation is the number one priority of the Government’s development policy. In reaching this goal, stronger economic growth and a dynamic private sector can play crucial roles. In order to attract increased FDI, there is an urgent need for improvements particularly in the areas of infrastructure, education and technical training, and the rapid and effective implementation of polices. Meanwhile, recognition by the Government that the private sector is the engine of growth is encouraging and offers much hope for the future.
Prime Minister Imran Khan says that the development of the construction sector is the key to stability and growth of the national economy and government understands that its 5 million housing schemes will only get success when the real estate sector grows because there are more than 100 industries directly and indirectly related to it. Boom in real estate will fuel growth in other industries such as the construction industry which accounts for 2 percent of GDP of Pakistan.