Ayesha Saba

Pakistan’s real estate sector is facing a pronounced slowdown, largely driven by the broader economic downturn and people’s declining purchasing power.

Experts argue that like any other industry, the real estate sector will take time to recover as economic fundamentals stabilise. Talking to WealthPK, Hassan Raza, a legal consultant at Sheikh Law Associates, a corporate and commercial litigation law firm, said over the past decade, Pakistan’s real estate market has experienced significant growth, driven by urbanisation, population growth, and increased remittances from overseas Pakistanis.

“The introduction of initiatives like the amnesty scheme in 2019 further fuelled investment in the sector.” However, he said this growth had not been without its challenges. “A lack of transparency, coupled with a culture of cash-based transactions, has made the market susceptible to speculation and money laundering,” he added. According to a report by the State Bank of Pakistan, a significant portion of real estate transactions remains undocumented, creating opportunities for illicit activities and distorting market dynamics.

“While there is no denying that urbanisation and population growth have contributed to the rise in property values, a substantial portion of the price escalation is driven by speculative investments,” he pointed out. He said: “Most investors are purchasing properties not for their utility but with the expectation of selling them at higher prices in the future. This behaviour is characteristic of a bubble, which, if left unchecked, could lead to a market crash.” Raza called for comprehensive reforms in the real estate sector.

“One of the key recommendations is the enforcement of well-documented transactions. Documentation of all property transactions is essential to bring transparency to the market,” he said. He suggested that the government should leverage technology to streamline the documentation process. “The introduction of digital land registries and blockchain-based systems can significantly reduce the chances of fraud and ensure that all transactions are recorded accurately.”

“The government has taken some steps in this direction, such as the introduction of the Fixed Tax Regime (FTR) for real estate developers and the digitisation of land records in some provinces to foster investments in the sector,” Raza said. However, he stressed that the government must work closely with stakeholders, including real estate developers and investors, to create a more transparent and sustainable market. “This entails enforcing strict penalties for non-compliance and raising awareness about the benefits of documented transactions,” he said.

Credit: INP-WealthPk