Qudsia Bano

 Pakistan's real estate sector, while facing formidable challenges including declining property values and soaring interest rates, is witnessing a notable development in its mortgage market. As the industry grapples with economic headwinds, mortgage lenders are innovating to meet the needs of a diverse array of homebuyers. The real estate landscape in Pakistan has encountered a downturn, characterised by a 15% decrease in property values over the past year, outpacing similar trends in other Asian cities. Karachi, Pakistan's economic hub, has experienced a 4% decrease in property values over the past decade, contrasting with the growth seen in cities like Mumbai.

Despite these challenges, Pakistan's real estate market offers unique advantages, including moderate rental yields averaging around 5-6%, and competitive rental tax rates. However, high mortgage rates, reaching up to 24%, present a significant barrier to entry for potential homebuyers. In response to these market dynamics, mortgage lenders in Pakistan are adapting their products to cater to the diverse needs of homebuyers. “Pakistan's mortgage sector, though facing hurdles, has immense growth potential,” said Dr Zahid Hussain, an economist in housing finance. “Mortgage lenders have recognised the importance of offering flexible and tailored financing options to address the evolving needs of homebuyers.”

The mortgage market in Pakistan has historically lagged behind its potential, with a consistently low mortgage-to-GDP ratio of under 0.5% for over a decade. However, there is optimism that targeted interventions and innovation within the sector can unlock its growth potential. “Despite the challenges, Pakistan's real estate market remains attractive for investors and potential homeowners,” said Muhammad Khattak, Relationship Manager at Faysal Bank. “The key lies in addressing the systemic issues plaguing the sector while capitalising on its inherent strengths.”

He said that efforts to improve financial literacy and awareness about mortgage products were also underway to empower homebuyers with the knowledge needed to navigate the housing market effectively. Khattak noted that while Pakistan's real estate sector faced significant hurdles, including high mortgage rates and declining property values, the innovation seen in the mortgage market signalled a positive step towards addressing the diverse needs of homebuyers. “With strategic interventions and a focus on reform, Pakistan's real estate market holds the potential to emerge stronger and more resilient in the face of economic challenges.”

 
Credit: INP-WealthPk