Real estate has always been a great investment option. However, with the unpredictable events of the past couple of years, it’s understandable to question whether it’s still a wise choice in 2023. With the pandemic impacting the economy and changing the way people work and live, the real estate market in Karachi has experienced its share of ups and downs. So, whether you’re a seasoned investor or a curious first-timer, sit back, relax, and let’s dive into the world of real estate.
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Impact of the Pandemic
The COVID-19 outbreak has significantly impacted the real estate market worldwide, and Karachi is no exception. The pandemic has led to economic uncertainty, job losses, and changes in how people work and live. In the initial days of the pandemic, the real estate market in Karachi came to a standstill as investors and buyers adopted a wait-and-see approach. However, as the pandemic wore on, the market slowly recovered.
One of the biggest impacts of the pandemic on the real estate market has been the change in buyer behavior. Many buyers are now hesitant to make big purchases due to economic uncertainty, and some are choosing more affordable options such as rental properties. Furthermore, the pandemic has made it more challenging for buyers to secure financing, as banks have become more cautious with their lending practices.
Another impact of the pandemic on the real estate market has been the shift in demand. With people spending a huge chunk of their time at home, builders and developers in Karachi have adjusted their offerings to meet the changing demand. They have shifted their focus towards providing properties that offer more space, privacy, and better amenities.
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High-Interest Rates
It’s no secret that the economic situation in Pakistan isn’t entirely rosy. In fact, the State Bank of Pakistan has raised interest rates to 20%, the highest since 1996! This has severely impacted the real estate market in the city.
The high-interest rates have made it more difficult for buyers to secure financing for their purchases, leading to decreased demand for properties in Karachi. This has also put pressure on builders and developers, who are struggling to secure financing for their projects due to the high cost of borrowing.
However, despite the challenges posed by high-interest rates, investing in real estate can still be an intelligent choice. Firstly, real estate is an asset that can provide a steady source of passive income. Even during economic uncertainty, people still need a place to live and work, which means that rental properties can be a stable source of income.
Secondly, investing in real estate allows investors to build equity over time. While interest rates may be high in the short term, property values tend to appreciate over the long term, which can lead to significant returns on investment.
Thirdly, real estate is a relatively safe investment compared to other assets like stocks and bonds, which can be subject to market fluctuations and volatility. Real estate investments are typically more stable and less prone to sudden drops in value. Real estate investment can provide a hedge against inflation. As costs of everything goes up, so does the value of real estate. This means that investing in real estate can be a way to protect against the erosion of purchasing power caused by inflation.
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Increase in Suburban and Rural Demand
Pakistan has seen a surge in freelancing and work-from-home culture in recent years. One of the key drivers of this trend is the rise of online platforms such as Upwork, Fiverr, and Freelancer, which have made it easier for people to work remotely.
As people continue to work from home, the need for larger, more comfortable living spaces has increased. This has increased demand for houses with gardens, open spaces, and outdoor areas. In suburban and rural areas, buyers can find larger properties with more space, often cheaper than in the city. In addition to lower prices and more space, suburban and rural areas offer a quieter, more peaceful lifestyle. With less traffic and congestion, these areas provide a respite from chaotic city life.
As a result of this change in demand, real estate developers in Karachi are beginning to focus on suburban and rural areas. Moreover, there is a growing demand for houses due to a 1.8% annual population growth. This has led to a surge in new construction projects outside the city, with developers offering a range of properties to meet the growing demand.
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Government Support and Tax Incentives
Pakistan’s real estate sector accounts for up to 5.6% (19.5 billion PKR) of the country’s GDP. This is why the government of Pakistan has implemented a range of policies to boost the country’s real estate sector. One of the policies implemented by the government is the reduction of taxes on real estate transactions. This has made it more affordable for investors to buy and sell properties in Karachi and boosted demand for real estate in the city.
In addition to tax incentives, the government has implemented a range of subsidies and other forms of support for real estate developers and builders in Karachi. This includes low-interest loans, grants, and other financial incentives to encourage the construction of new properties in the city. In 2020, the government provided a Rs. 30 billion subsidy to the Naya Pakistan Housing Scheme Authority to provide lower-priced houses to low-income families. In 2022, banks were directed to increase their housing and construction portfolio to 7% of their domestic private sector advances.
Furthermore, the government has also taken steps to improve infrastructure and other amenities in Karachi, which has helped to attract more investors to the city. This includes improvements to transportation networks, the development of new parks and green spaces, and the construction of new schools and hospitals.
Conclusion
In conclusion, real estate investment continues to be an excellent choice for those looking to invest in a stable and promising market in Pakistan. With the proper knowledge, research, and support, investors can capitalize on the many opportunities presented by this dynamic and ever-changing market.
