The real estate market of Pakistan is one of the biggest and most influential sectors that play its role in the country’s GDP, Employment, Investment and Development. The market can be divided into numerous submarkets, including residential, commercial industrial, and special purpose, which provide opportunities for acquisitions by potential clients. The real estate sector forms one of the major parts of Pakistan’s economy.
Let’s explore the real estate market in Pakistan fell in 2023
But, it’s 2023 and there’s been a decline in the real estate market in Pakistan due to several issues including the transition of the currency, political instabilities and rise in taxes. These factors have the worst impacts on the performance and profitability of the real estate market as they deter the buyers and investors, put up the cost and risk of the transactions and dampen the value and profitability of properties. As promised in our previous posts, in this blog post, we will talk about the analysis of the real estate market in Pakistan in 2023 and its decline.
Currency Fluctuation
Another reason Pakistan’s real estate sector decreased in 2023 was the devaluation of the Pakistani rupee to the US dollar. The purchasing power parity of the Pakistani rupee declined from 168.5/PKR in January 2023 to 198.7/PKR in December 2023 hence being down by 17.9% showed the tables below. This was due to real factors including the current account deficit, the depletion of foreign resources, the upward trend in external borrowing, volatility of international oil prices, and the IMF programme.
Reduction of Pakistani rupee
The devaluation of the Pakistani rupee was the primary cause of the decline in the real estate sector in 2023 by raising the import pay, inflation, and debt servicing, and downsizing buyers’ and investors’ purchasing power and confidence.
The overall import costs – including raw materials, machinery and equipment – went up for developers and builders, who had to part with more rupees for every dollar. That raised the price of construction and development of the properties and cut down the gross of the developers and builders.
Inflation rate
The level of inflation is the increase of price level for goods and services; the level recorded in January 2023 was 8.7%, which rose to 12.4% in December 2023 – an inflation rate of 3.7%. This was due to pass pass-through effect of the rupee reduction that put its impacts on the imported stuff including oil, food and electricity.
According to the decreasing order of the share, the external loan of Pakistan at the end of June 2022 was estimated to be US $116.3 billion as compared with US$ 128.9 billion at the end of June 203. However, in 2023 it will add 23.5% more, to a total of US $14B. This further raised the deficiency and the borrowing requirement of the government and, decreased the expenditure on public, the nation’s growth rate.
Purchasing power and confidence
The buyers and investors lost their purchasing power as the price of their rupees also reduced in terms of dollars and their confidence level was also affected significantly. The buyers and investors particularly foreigners received challenges in buying or investing in the properties as these were becoming costly and becoming unaffordable. The buyers and investors also developed a cautious attitude toward purchasing the properties, as they assumed gradual depreciation of the rupee and volatility of the economy.
Thus these effects, the real estate fell badly in the market of Pakistan in 2023. The construction and housing sector witnessed a contraction of 4.2 per cent in 2022-23 compared to a growth of 8.3 per cent in the previous year, as Reported by the Pakistan Bureau of Statistics. According to the Zameen.com Property Index, property prices in the country were said to have gone down by 6.7 per cent in 2023 and the hike that was observed in 2022 was 9.8 per cent.
Political Instability
The third reason that led to the decline of the real estate market in Pakistan in 2023 was the political instability of the country. Pakistan went tough politically in 2023; it witnessed the overthrow of Imran as PM, the opposition movement by Khan, legal cases against Khan & his party, the dissolution of provinces, the mass protests & arrests, and the election.
The political instability affected the real estate market in 2023 as it brought security issues, delays and interruption of new projects, and no encouragement to foreign or local investment. The security risks rose for everyone, including individuals and firms, as they were subjected to violence and political party and group threats. What was additionally evoked in the case of the Morely properties’ purchase was buyers’ and investors’ aggressiveness and anxiety, as well as the decrease in their safety and appeal.
Project and activities
Projects and activities related to this sector were slowed down. Problems with labour relations including strikes and shutdowns, and uncertain institutional and authorities actions affected the construction and development of buildings and other properties, approval, registration and issuance of documents, and transfers and payments of funds.
Due to these effects, the real estate demand and supply along with property price and return decreased in Pakistan in 2023. The World Bank further shows that FDI for Pakistan was down by 18.6% in the year 2023 as opposed to a rise in FDI by 12.4% in the year 2022. Pakistan Real Estate Association revealed that real estate sales in Pakistan shrank by 21.3% in 2023 and it was up by 15.7% in 2022.
Also read, Top 10 Real Estate Companies in Abu Dhabi.
Increasing Taxes
The third reason that led to the market downfall for real estate in Pakistan in 2023 was the rising taxes on the real estate industry. The PDM government made some changes in the taxation policies especially for the real estate sector in the 2022-23 budget to boost tax revenues by the IMF program. These changes were in the form of; the withholding tax, the capital gain tax and the income tax especially for property owners and buyers or sellers.
Taxes’ key influence on real estate escalated in 2023 when taxes levied were higher to the owners buyers, and sellers as well.
Federal board of revenue
The shift of taxation measures disrupted the real estate market in 2023 in very many aspects influencing the actions and choices of the owners, buyers and sellers in the society. Under the FBR, the collection from the real estate speeded up by 27.8 % in 2022-23 compared to 18.6 % in the year 2021-22.s, and sellers. According to the Federal Board of Revenue (FBR), tax collection from the real estate sector increased by 27.8% in 2022-23, compared to 18.6% in 2021-22¹.
Nevertheless, the Pakistan Real Estate Association revealed that there was reduced transaction in the real estate market in 2023 to 21.3%, a decrement from 15.7 % in 2022². As this demonstrates, the rising taxes shrunk the demand-supply, activities, transactions, and prices and returns in properties in 2023.
Shehbaz Sharif’s Tenure (PDM Tenure)
Imran Khan’s rival Shehbaz Sharif, the leader of the opposition, and the president of the Pakistan Muslim League (N), became the Prime Minister of Pakistan on 11 April 2022 following the no-confidence motion. However, his stay in office was fleeting, he did not solve the economic and political problems of the country.
He also put unnecessary and destructive taxes on residential property like wealth, luxury, and property taxes. The wealth tax levied on the net worth of persons with 100 million rupees or more was raised from 0.5 per cent to 1 per cent budget 2022-23.
The luxury tax, which was levied on properties costing more than 10 million rupees, was raised from 5 per cent to 10 per cent in the budget 2022-23. They also increased various rates of property tax which the provincial governments collect on the annual rental value of the properties. These taxes produced a greater tax price together with an establishment cost to the property owners, buyers and sellers and diminished the income base as well as the affordability of the owners.
Conclusion
The real estate market in Pakistan declined in the year 2023 therefore due to different reasons including fluctuation in currency, unstable political situation, increase in taxes and especially due to the Shehbaz Sharif government or PDM tenure. All these factors affected the demand and supply and the prices and return of the properties in 2023. The reader is encouraged to express his or her thoughts, and even experiences, on the subject of the article.
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