Investing in Pakistan’s Real Estate: A Guide for Real Estate Investors
The introduction of a construction package by the Prime Minister of Pakistan amid an economic crisis caused by the coronavirus pandemic has resulted in the booming of the real estate sector in Pakistan. Under an amnesty scheme being provided to investors who invest in the construction and real estate sector, no declaration of source of income is required until the completion of the project. This has resulted in a significant number of real estate projects being developed and implemented in Pakistan.
However, a myriad of challenges has also erupted due to the rapid growth of the sector. As construction activity increases in housing projects and high-rise building development, the supply of construction materials is constrained, and costs are high. Furthermore, a majority of projects that were applied under the amnesty scheme are not yet approved, and investors who are investing in these projects have often complained of their money being locked up in disputes. Therefore, it is important to understand what steps overseas investors must take to enable successful real estate investing.
Why Investing in Real Estate is the Best Option for Overseas Pakistanis?
Pakistan’s real estate sector holds immense potential for vertical and horizontal growth. The country has the highest per capita demand for housing in the South Asian region, with more than 20 million units of housing required by 2030, with an annual increase in this demand by around 3 million housing units. Therefore, it is only logical that the government is placing a high focus on the sector’s development. Several steps have been taken to facilitate the process. Planning and approval of a real estate regulatory authority in the Federal capital of Pakistan is the first step towards regulating real estate. The body will ensure the availability of necessary information such as real estate project details, ownership details, and regulatory compliance of multiple functions of the developer. The move will enhance investor confidence in real estate projects and bring much needed foreign investment to Pakistan. It will also ensure that investors only invest in projects where all necessary approvals have been taken from the relevant authorities beforehand. Considering that most of the cases in Pakistani courts are related to land and real estate as people invest in projects that are not approved, the challenges associated with the sector are being addressed on a priority basis.
Pakistan has also launched the Roshan Digital Accounts for overseas Pakistanis to take advantage of financial institutions to perform functions from overseas with relative ease. The government has recently announced that overseas Pakistanis will be allowed to buy and sell real estate using these accounts. A sponsor can also be chosen to undertake ownership transfers under the process. This will significantly reduce the barrier of capital movement for overseas Pakistanis and allow them to invest more safely and securely. The projects offered under the RDA scheme will also be vetted by commercial banks, which adds to the security of the investment. The Federal Board of Revenue (FBR) has also stipulated regulations and licensing measures for real estate agents so that no unqualified agent deals in the real estate sector. This will massively improve the market practice as it will eliminate or minimise many malpractices present in the real estate market. Lastly, the Naya Pakistan Housing Program’s setting up and easing up housing finance services have positively impacted the market. Projects under construction will also be available for financing under the new State Bank of Pakistan regulation. Therefore, the real estate sector of Pakistan is fast becoming a safe and secure investment option for overseas investors.
How to Decide Where to Invest: Ownership, Approval, Demand, and Delivery Model (OADD)
Investing in the right real estate project can not only be an extremely beneficial option, but it also comes with a lot of advantages in terms of tax and portfolio diversification. However, many deals and transactions in real estate are fraught with difficulties and legal concerns based on several factors. Overseas investors particularly face these challenges due to rampant malpractices and market speculation forces. Therefore, it is necessary that before investing, the verification of land ownership is carried out, and all the necessary approvals required for that project are also obtained from the relevant authorities, such as a No Objection Certificate (NOC) and Layout Plan Approval (LOP). This is particularly important as only the legal titleholder of the land is authorised to sell it. In contrast, any development made on real estate can be demolished or fined by the relevant land authorities without obtaining the necessary approval.
Furthermore, the success of any real estate project, be it residential or commercial, is a mix of several different factors. Besides targeting the interests of a fast-growing and increasingly prosperous population, the most important factor is demand. Greater demand for a project will maximise the revenue potential it offers. This can be ensured by conducting a market feasibility report, including market analysis, demographic analysis, and land-use planning. However, measuring demand for a project is a complicated task that can be affected by many different outliers. By using market trends data, data on the economy, demographic data, and urban planning analysis, an effective judgement on a project’s demand can be ascertained. Lastly, in terms of investing in new projects, the investor must also ensure that the developer has a good delivery track record. Trusting new developers can be a high-risk situation, especially in a market that is highly deregulated. Therefore, ensuring that the ownership, approvals, demand, and delivery of an investment option are thoroughly checked will significantly enhance the chances of investing successfully in the real estate market.
Several steps taken by the incumbent government of Pakistan in the wake of the economic crisis caused by the coronavirus pandemic have resulted in the growth of the real estate sector in Pakistan. The launching of the Naya Pakistan Housing Program, a housing finance subsidy package of Rs. 36 billion, launching hasthe Roshan Digital Accounts, and forming a real estate regulatory authority has helped bring the much-needed regulatory boost to the real estate sector. Due to this, strong investor sentiment can be seen in the market, with many investors bringing huge capital to the real estate market. However, most of these investors end up in fraud cases, and their capital is stuck due to lengthy litigation trials. Therefore, verifying the ownership of land, approvals from the relevant authorities, demand in the market, and delivery track record of the developer are necessary before making any investment in real estate.