Real (STATE) challenges
THE current economic slowdown and inflation in Pakistan are negatively affecting the real estate sector also in several ways resulting in reduced demand, decreased investment, higher interest rates, slower construction activity, and decreased government spending. Investors who are looking to invest in real estate are hesitant to do so due to the uncertain economic conditions. They prefer to wait and watch which has contributed to a reduction in real estate investment. Due to inflation, the cost of construction material and labour has increased that resulted in slower construction activity. This has led to delays in project completion and has resulted in a backlog of unsold properties.
According to the State Bank of Pakistan (SBP), the foreign direct investment (FDI) in the real estate sector of Pakistan during the last 3 years (2019-2021) is as follows: In 2019, the FDI in the real estate sector was USD 174.8 million. It went down to USD 135.9 million in 2020 and in 2021 (until January), the FDI in the real estate sector was USD 24.8 million. FDI in the real estate sector decreased by $6 million during FY22. The outflows were recorded at $9.3 million against the inflows of $3.3 million during the said period.
The previous government took several measures to promote foreign investment in the country, including the real estate sector. These measures include the introduction of a new real estate regulatory authority, reduction of taxes on the construction industry and amnesty schemes. These initiatives were expected to attract more FDI in the real estate sector in the future however the political instability in the country forced investors to pull out their investment and move to other countries even using the money laundering.
Political instability can have a significant impact on the business sector, including foreign investment. Uncertainty and instability in the political environment created a huge negative perception among foreign investors, resulting in a reduction in foreign investment. Political instability leads to an economic slowdown as investors become hesitant to invest in the country. This resulted in a reduction in job opportunities, lower GDP growth and a decrease in the standard of living.
Experts believe that relevant regulators are not much focused on controlling the illegal and fraudulent housing projects where people have invested their hard earned billions of their rupees but now facing issues in project delivery or even many of them have just vanished leaving people vulnerable. This has led to distrust among people regarding real estate especially the overseas Pakistanis when they see news regarding real estate frauds on social media and national media they become reluctant to invest in Pakistan. They say that 18 being the different lifestyle housing project with limited and quality products, the current economic climate of the country did not hurt our business much but yes the overall country’s economic situation has an impact on the real estate industry overall.
The key institutions responsible to protect citizens from these mafias are busy in making money under the table. According to a senior journalist, key regulators in twin cities include TMA, CDA, RDA and they usually close their eyes on property frauds and let the mushroom growth of illegal housing schemes unchecked and later start issuing notices to societies that create a sense of loss of money in people who have already invested in such projects. He believes that the role of media is key in highlighting the illegal projects in the country, however sometimes journalists also compromise the integrity for monetary benefits.
In the last decade or so people have started thinking that investment in property and real estate projects will bring easy money and fraudsters lure such brains with strong social media campaigns to loot innocent citizens. Action against illegal projects can only yield results once law enforcement agencies and courts will start punishing the relevant government officials also who are involved in such frauds and letting mafia keep on looting people through fake projects.
People used to see ads on social media that lure them to invest in fraud housing schemes and later they find that they have been looted of their hard earned money. Or in many cases, after so much public investment in housing or commercial projects by private developers, the regulator comes in and stops the whole process by declaring the project illegal leaving the investors in limbo. To increase foreign investment, the government needs to work towards creating a stable political environment, introducing investment-friendly policies, investing in infrastructure development, and promoting special economic zones.
Distrust on government policies can hamper economic growth especially when people do not trust the government’s policies, they may become hesitant to invest, spend, or even work, which can have negative consequences for the economy. This can result in lower economic growth as businesses may not have the necessary funds to expand and create jobs. Pakistan must adopt a transparent and accountable system seeking the opinions of various stakeholders, including businesses, civil society and citizens to ensure that its policies are inclusive and responsive to the needs of people and this will encourage trust among people. A strong action against the real estate mafia will also help further investment in this key sector of economic growth.
—The writer is a broadcast journalist and communication expert based in Islamabad.
