Land is an essential, fixed and scarce resource which require efficient utilization. Traditional economics is limited to explain the impact of time and space in context of property as it always consider economic activity placed at a single point in time and always consider consumption at the time of transaction. However, real state being the durable asset with long life, location and heterogeneous character will be traded in the market very differently if we compare it with other commodities. Adam Smith (father of economics) also devoted a considerable portion of his book, “WEALTH OF NATIONS” on rent earned from the land.
Ownership rights of property always play a significant role in the economy where large proportion of labor force are directly or indirectly employed in this domain. Real estate rights are important in both public and private sectors and will impact many other sectors like industrial, retail and sales, commercial, residential, recreational ad tourism etc. Its ownership engage many economic agents like legal services, property management, real state service providers, consultant and construction companies, financial institutions and investors but all agents are trying to answer the basic economic problem of ‘Unlimited wants and Limited Resources’.
Being the highest per capita demand for housing globally, real estate sector of Pakistan has the potential to uplift and revitalize the country’s economy. The country needs 20 million housing units by 2040. This demand can be fulfilled either through utilization of planned or unplanned areas. Less than 0.5% of Pakistan’s area is planned, having a worth of USD 600 to 700 billion. If 20 million housing units are created by 2040, the value of this planned area can increase to USD 1.5 to 2 trillion. It will also lead to the creation of 15 to 20 million jobs in the real estate market and its allied sectors. This real state sector will also increase the pace of Industrial growth and local production. Therefore, we may easily concluded the fact that, real estate is one of the main driver for Pakistan’s economy. Unfortunately, data on the real estate sector is not streamlined in Pakistan. Due to the undocumented characteristic of the construction sector, its contribution in the GDP remains undervalued, whereas, in reality, the actual contribution could be around 10 to 12%.
General perception among people to make their future secure drives them to invest in the real estate sector in Pakistan. However, due to heavy taxes imposed on the real estate sector by the different governments, investment trends in real estate have shrunk, resulting in a complete obliteration of this sector. Apart from this, this sector is confronting multiple other challenges. Since Independence this sector is the victim of missing policy and regulation due to which challenges of Planning, regulation, informational access and malpractices are experienced which are not at all difficult to resolve.
We are always looking for a competent model followed in developed nations to adopt but viable solutions are available domestically which are not only easily available but are designed to target the local needs due its nature of localization so, we need to work in the areas of architecture, real estate development, infrastructure development, hospitality, services, technology, and financing. If we look at the system used in UK where online land registry system was re-introduced in the 2000 through digital mapping of its land.
The Imarat Group has adopted the technology where most of the planned 0.5% area of Pakistan has been digitally mapped. A total of 30 million people live in the planned areas of Pakistan, whereas the rest live in unplanned areas or slums. Out of the total 4.6 million plots of planned land, 4 million have already been digitally mapped, while the rest can be completed in short span. Introduction of a land registry system is vital for Pakistan as a staggering 60% of court cases are related to real estate, with 80 % of these cases being related to disputed ownership.
A majority of overseas Pakistanis complain about real estate transparency in Pakistan. Land acquisition is another significant challenge in the real estate market of Pakistan. If the process is made easier for the developers, the delivery of real estate projects can be ensured on time. This sector in Pakistan also facing over-regulation by the government and the FBR. Considering the housing price index and KSE-100 index (see Figure). Between 2011 and 2019, cumulative return of housing prices has been high compared to KSE-100 for only 3 years. In the same period, the KSE-100 index has increased by 230 percent versus 147 percent for housing prices.
Therefore, an empowered regulatory authority is mandatory who bring a well-structured, transparent and centralized system for investors as compared to the current complicated procedures of documentations and doubtful legal support so, the impression that real estate is related to just buying and selling of land is an outdated understanding. Real estate not only includes the urban and agricultural land, but it is also a major part of the services and industry sector of the economy.
There is a serious lack of information regarding the sector’s growth and performance. A high per capita demand for housing coupled with investments flowing into the country in the form of remittances means that the real estate sector has the potential to revitalize and uplift the economic development of Pakistan which is only possible if we efficiently utilize this scarce resource gifted by nature.
[box type=”note” align=”” class=”” width=””]The author is MD IRP/ Faculty Department of H&SS, Bahria University Karachi[/box]