Pakistan Real Estate Sector Offers Lucrative Investment Options

Seeing a considerable increase in investment in residential and commercial properties in 2015, despite the levy of Capital Gains Tax, Capital Value Tax and Stamp Duties in the Federal Budget 2014-2015, real estate experts predicted an extremely promising 2016 for Pakistan real estate. Industry experts were fully confident that investment would continue to increase in 2016 because of investors’ increased interest and their trust in the property market and faith in government' s policies to improve and reform the sector.

The Federal Budget 2015-16 brought much needed tax relief to the sector. Therefore, by all projections, Pakistan real estate sector was expected to attain new heights in 2016. However, this positive outlook took wrong turn with the announcement of the Federal Budget 2016-17. Property taxes were increased and the outdated District Commissioner (DC) rates for property valuation were replaced by the FBR determined market values for documentation and taxation purposes.

As we know that the market values of residential and commercial properties are not documented in Pakistan, so it is nearly impossible to determine the worth of real estate sector. As per surveys and FBR released data, it is estimated that the sector is worth around $700 billion. Real estate and construction sector together account for approximately 2 percent of Pakistan' s total GDP. It generates higher level of direct employment and also stimulates demand in more than 250 additional sectors.

It is not wrong to say that real estate is traded as a commodity in Pakistan – as wealthy investors buy properties in bulk and later sell them at an attractive profit. It was also traded for short-term gains because the sector was not regulated until 2014. There was no check and balance in realty sector; therefore, it was considered an ideal investment vehicle to park black money. It led to creation of a property bubble with artificial property hikes and a widening supply-demand gap in the housing sector.

The trend of buying luxury properties has also increased tremendously in the last decade, primarily due to an increasing demand for secure and well-maintained houses – it is therefore not surprising that from few years, luxury property prices increased considerably. Another trend that was also observed recently is that people are more interested in buying apartments than luxury houses. With the rapid urban sprawl, cities have congested, land prices are going up and the apartment living trend is swiftly gaining attraction in these cities as well.