Top challenges of real estate in Pakistan

Pakistan is a developing nation that is improving and innovating at a very high pace. The industrialization and betterment of infrastructure have boosted the economy by leaps and bounds. It is worth mentioning here that real estate has also grown gradually alongside other vital industries in Pakistan.

Today, it is considered one of Pakistan’s best business and investment opportunities, owing to its significant advantages such as ownership of assets, high returns, and security. However, the challenges of real estate in Pakistan are also there. These challenges are caused by different external and internal factors. 

In this blog, we will highlight those challenges to understand the real estate market and its dynamics. To know about the challenges of real estate in Pakistan, keep on reading

• Economic condition:

The economic conditions of the country have a significant impact on the real estate industry. If the country’s economic conditions are good, the real estate market will also perform well in the global market. When economies perform better, the investors invest their money, and in return, the demand for real estate also increases. This happens because real estate works mutually with other industries and markets in Pakistan. 

However, if the country’s economy is struggling and weakening with time, the real estate market may also crash. When investors find out that the economy is struggling, they pull away from their money, leaving behind financial losses for the real estate market.

• Interest rates:

Interest rates play a crucial role in the growth and development of the real estate market. Some financial institutions and banks provide loans to people. When this interest rate rises, the people fail to take loans, and in return, the demand of the real estate market, especially the housing segment, falls drastically. 

To increase the demand for real estate products, the government should take radical measures to ensure a low interest rate. This will motivate the investors and general public to invest in real estate. 

• Management:

In Pakistan, the real estate market is not very organized because few professionals and companies understand the ins and outs of the real estate industry. Unfortunately, many people in Pakistan claim to be real estate experts. They do not have adequate knowledge, skills, and abilities to handle real estate. As a result, they try to rip off people, leaving them with financial losses. Many scams have also surfaced in the media that show that many illegal companies operate in Pakistan, leading people to real estate scams. 

• Volatility:

Pakistan is a developing country and has a lot of uncertainty about it owing to many external and internal factors. These factors also contribute to increasing the volatility of the real estate market. It is seen that real estate can be volatile due to sudden changes in political, geological, and social factors.

• Liabilities:

Liabilities always make things difficult for the real estate market. For example, sometimes governments implement heavy taxes on investors, which leads to stagnated growth in the real estate market. On the other hand, the prices of raw materials also shoot up sometimes, increasing the overall construction cost in Pakistan.

• Inventory issues:

The gap between supply and demand may cause inventory issues in real estate. For example, sometimes, the active listings may drop in certain areas, and the percentage of potential buyers may increase. In such cases, real estate suffers because a potential buyer trails off. 

Inventory issues may also cause cap rate compression. In short, cap rate compression refers to an increase in commercial real estate prices without an increase in rental income.

• Income uncertainty:

Many real estate projects are done in Pakistan without proper market research. As a result, they fail to attract the people. For example, you might have seen many abandoned houses and commercial properties around you. The people who have invested in such properties without background research might be incurring huge losses in terms of stagnated income etc. 

• Occupancy issues:

In some regions, such as hilly stations and other tourism spots, seasonality in demand is expected. This means that in certain seasons, the occupancy rate will be 100 percent, whereas the occupancy rate will drastically decrease during the offseason. 

The decrease in occupancy rate causes financial losses for the investors and the owners of the property.

• Tenants issues:

Some tenants exhibit delinquency behavior, and it becomes challenging for the house owners to evict the tenants. In Pakistan, tenant laws and regulations do exist. However, there is a lack of implication of rules which makes the situation even worse. To deal with this issue, the government should take radical steps and ensure a safe and secure eviction process.

• Funding issue:

Real estate investors may need external funding to complete their projects. The financial institutions provide these fundings at interest. Sometimes the funding process may take time in Pakistan, leading to issues such as loss of deal, higher interest rates, etc.

• Technology constraints:

The real estate sector across the globe is shifting from traditional real estate to digitized real estate. Many companies have shifted their focus to digital media, such as online portals, websites, and social media.

Pakistan is a country where technological advancements still need time, and people are not tech literate. As a result, they fail to understand the online real estate market advantages. To match the global market and its emerging trends, Pakistan needs to increase its technological literacy. For that, the government should host seminars and educational degrees for the masses.

• Hyperinflation:

Hyperinflation is rapid, excessive, and out-of-control general price increases in an economy. While inflation measures the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.

The ongoing global pandemic has contributed significantly to raise the inflation rate of the country. As a result, the prices of goods and services increased, including real estate prices.

• Slow sales process:

From listing a house to closing the sale, the real estate sales process consists of many stages. Many companies that operate in Pakistan claim to be experts, but they have a flawed sales process. As a result, they fail to make proper sales and incur substantial financial losses.

To survive in the fast-paced market, the organized sales process is crucial.

• Growing competition:

Real estate is an industry that is improving and growing by leaps and bounds. The prospects of real estate made many people invest in real estate. Many real estate companies and projects also emerged, making real estate competition in Pakistan more fierce. 

The growing competition also increased the cost of conducting operations in real estate, such as marketing and lead generation.

• Scams:

In Pakistan, real estate scams may occur. Many people and fake companies try to sell artificial real estate projects to innocent people and deprive them of their money. In Pakistan, the digitalization of real estate records has started where all the registered and legit real estate projects will be listed. 

Before investing in real estate projects, make sure you do your research and check your local development authorities to ensure the credibility of the real estate project. 

So, these are some of the real estate challenges in Pakistan that are prevailing in society. To counter these challenges, we need to work together as a nation to ensure transparency, security, and the welfare of the community. Also, the government should take radical steps to eradicate all the loopholes and malpractices associated with real estate.

We hope you liked this piece, and it helped you understand the top challenges of real estate in Pakistan.

If you have any other suggestions or queries regarding these challenges, drop a message in the comments section below, and we will get back to you as soon as possible.