Ayesha Saba

Pakistan’s real estate sector is facing substantial hurdles in property leasing and mortgage systems, impeding investment and hindering sustainable growth. Speaking to WealthPK, real estate consultant at AH Group of Companies Adnan Ahmed said Pakistan’s property sector was facing substantial challenges due to the inflationary pressures, resulting in a depreciation in the real property values. “Mortgage financing remains underdeveloped, with high interest rates and stringent collateral requirements. This has limited access to house finance for a large segment of population, particularly middle and lower-income groups. Policies should focus on increasing access to an affordable housing finance for low and middle-income families,” he added.

He emphasized the urgent need for strategic economic reforms to stabilize the market and restore investor confidence in the country's real estate sector. These reforms are crucial for bringing Pakistan’s property market in line with the positive growth trends observed in other Asian regions. He highlighted that the sector faced challenges despite the potential of construction and housing to stimulate economic activity, create jobs, and enhance the living standards. “The real estate market is facing liquidity challenges, as the banks have become more risk-averse amid economic uncertainties. They often require substantial collateral and the lending criteria are so stringent that only a small fraction of population can secure a mortgage. This has restricted the availability of mortgage financing, particularly for the middle and lower-income groups,” he said.

Despite its significant importance, the real estate sector lags far behind in competing with its Asian peers. Pakistan’s construction sector, contributing over 2.5% to the GDP, is integral to the economy with links to over 200 industries. Housing and construction finance saw a modest growth in FY2023, rising by 1.33%, as the high interest rates and a sluggish economy constrained the banks from expanding their lending portfolios. According to the State Bank annual report, the outstanding amount of housing and construction finance increased to Rs456.8 billion by the FY2023, up from Rs450.8 billion a year earlier. The mortgage market in Pakistan is notably smaller than those in other Asian countries, as seen in its consistently low mortgage-to-GDP ratio of under 0.5% for over 10 years.

Credit: INP-WealthPk