Pakistan Real Estate Sector is witnessing some interesting times. The recent times have witnessed a 80-120% growth in development of commercial projects. These include special industrial zones, purpose built office places along with shopping malls.
So what significance do the shopping malls have? To elaborate these provide investment opportunities to the non-business community and while it may result in purchase transactions it also results in monthly rental incomes.
Investment in Industrial Parks Increased by Almost 45%
Investment in properties which are located at industrial parks, also known as specialized industrial zones, has witnessed a surge by almost 45% over the last 2 years.
So what are these industrial parks about? These provide state of the art infrastructure and premises. These industrial parks entail a lot of benefits for the investors including
- 10 years tax-free operational cost after land purchase
- Exemption from import and custom duties for machinery and capital goods.
- In addition to specialized utilities these also provide basic facilities like wireless internet connectivity, telephone, gas and water.
Of late Pakistan has also witnessed gated communities that are springing up in a few prominent cities of Pakistan and while Karachi leads in this aspect Lahore and Islamabad follow.
These gated communities are located on the outskirts of the cities and offer round the clock security, state of the art infrastructure along with amenities like commercial centers, mosques, gymnasiums and playgrounds etc which makes these gated communities a luxurious and secure destinations.
Since these gated communities have gained popularity, these have also attracted massive investment from overseas Pakistanis as well almost up to 80%.
Karachi has witnessed a tremendous growth of15-250% in the housing sector.
Lahore has witnessed a growth of 72% in the housing sector
Islamabad has witnessed a growth of 48% in the housing sector
Higher Resale Value of Residential Property
Owing to the influx of working communities from smaller town and rural areas to cities like Hyderabad, Peshawar, Multan, Gujranwala, Faisalabad and Quetta, the demand of housing space has increased in these cities. This in turn has led to higher resale value of the residential properties in these cities.
The New and Emerging Scenario after Budget 2016
The budget 2016 however, seems to have changed things after it announced an amendment that does not seem to have sit well with the on-going development in the real-estate sector.
According to the amendment the provincial governments will no longer be able to evaluate the prices of the properties something which was in place since 1986.
It rather suggests that the State Bank of Pakistan will now take over the matter and determine the collector rate value of the immovable property. This means that it will be significantly higher than before since it would be in line with the actual market value.
For the government this means that it will lead to increased stamping fees, registration fees and capital value tax.
The Implications of the New Amendment for the Real-Estate Sector
This however, has negative implications for the real-estate sector and the ongoing transactions as higher taxes and higher CRs would lead to reduction in the number of property transactions along with an accompanying drop in the property prices.
The first implication of this amendment is that the demand of both the commercial and residential segments seems to have become stagnant with the passage of time as the investors seem to have adopted a wait and see approach.
The implications can be comprehended from the fact that there has been almost 60-70% decrease in the sales transactions since the month of July when this amendment was announced.
The Amendment Implications on Re-sale Value and Vacant Plot Purchase
Another negative implication has been on the resale value of 1,000 square yards which has dwindled by as much as 25%. However, vacant plots it seems have been the greatest victim of it as the price of these has dropped by as much as 45% in the majority of the areas.
Karachi-the Worst Hit
It seems that Karachi which was attracting the most investment especially in its commercial sector and was expected to have a ROI of about 12-19% seems to have suffered the most owing to the present scenario.
Finally Some Good News “Real Estate Investment Trust”
In the present scenario which, for now, seems to have become a big stagnant is expected to move in the right direction after the introduction of REIT, Real Estate Investment Trust.
So what is REIT? It is an entity which is aimed at enabling small investors to go on to become share holders in property by offering an initial 9% dividend and stakes in very prominent office towers and malls of Karachi once it sells shares.
CPEC and Gwardar
CEPEC and Gwadar port are other prominent factors that are contributing to a boom in the real estate sector of Pakistan. According to experts prices in Gwadar are expected to rise by as much as 50-100% by the year 2017.