People cannot be coerced into exporting goods, especially if the incentives lie in the passive real estate sector

KARACHI:

Real estate is a major avenue for investment in Pakistan and, in terms of returns, has beaten almost all other asset classes. According to the House Price Index, houses have shown a compound return of almost 13% over the last 10 years. The last two years have seen a compounded return of almost 18%.

The drivers of demand for real estate in Pakistan are slightly different than the global drivers.

It is unrealistic to think that the rising price of houses results from a rise in consumption. Consumption may be one of the drivers here, but it is not the most important. Why do I say something like that? In response to contractionary monetary and fiscal policies, consumption in Pakistan has started to diminish. Real-estate prices have not budged despite a noticeable dip in car sales and gasoline consumption.

Five years ago, I wrote an article in this newspaper comparing the real estate hub of Pakistan, Karachi, to other metropolitan cities. Pakistan’s real-estate sector peaked, given the traditional demand-side indicators, such as the rent-to-price and salary-to-rent ratios. This did not happen to me, to my astonishment. The best explanation of my situation can be found in verse from Ghalib.

“Thee khabar garm ke Ghalib ke urenge purze,

Dekhne hum bhi gae thay, par tamasha na hua”

(It was big news that pieces of Ghalib’s body were going to be taken apart,

Pakistan’s real-estate bubble never burst as predicted, and I was among those waiting to watch, but the predicted circus act never took place.

The real-estate bubble didn’t burst, but why did the Tamansha not place? In Pakistan, consumption is only one of the primary drivers of real-estate demand.

Surplus funds parked in this sector by the more affluent classes of society are the reason for real-estate demand. It has become very difficult to take money out of the country because of the Financial Action Task Force conditions. Those popular destinations grapple with money-laundering issues and are usually used by Pakistan to hide its financial surplus. The funds that cannot find a way out of Pakistan have found a place in the real estate market.

If Mr A wanted to park funds in a real state to purchase a plot of land from Mr B, what would Mr B do now? Will he use the money to invest in his own company, or will he use it to purchase shares in his company?

No, he does not do that sort of thing. He buys another plot of land because he wants to make more profit. The chain has been going on for a long time.

Pakistan’s real-estate refuels itself, becoming more and more profitable for those who can afford it. Kevin Spacey said in a movie that land is a limited resource, and in Pakistan, a finite amount of land is chased by an infinite number of buyers. The money offered for plots is growing by leaps and bounds, even though these buyers and sellers manage to increase their investment every few years. There is a limited amount of supply, however. This limited supply causes the prices to go up again and again.

There is no end in sight for the boom if the economic policies stay the same. Investing in property market investments can turn black money into white cash. This is an important driver for real estate as at least 40% of Pakistan’s economy is not documented. Hence, huge sums of money are routed through this avenue.

So, then what’s the problem with this?

The problem with getting on this self-refuelling real-estate bandwagon is that it is diminishing the productive potential in the country. When you can double the money in a few years playing golf, why would anyone want to export goods critical to our economic survival?

The tax laws governing this area make it possible for real-estate barons to pay infinitely fewer taxes than they would in the corporate sector. This acts as an incentive in favour of the real-estate bandwagon and also results in the government needed help to collect the required amount of tax.

Men are motivated by incentives. You must refrain from forcing them to export goods, especially if they live in the passive real estate sector.

In the next few years, there will be an oversupply of homes, which means home prices will fall.

Pakistan’s balance-of-payments crisis results from the need for more incentives offered in other lucrative, productive businesses.

Economists have developed a nudging theory that can be used to turn a situation involving a selfish individual into one where everyone is better off.

Incentives must be created to ensure that surplus capital flows through efficient businesses. It would help if you always established incentives for your business, especially for export.

Exports are a potential solution for Pakistan. An increase in exports would boost the economy and lead to a recovery.

Pakistan has had its ups and downs over the past few years, but it can only avoid another economic meltdown if it stops the country’s current real-estate trend.

The writer is a banker and teaches economics

Published in The Express Tribune, November 14th, 2022.

Real Estate Sector has huge potential to adjust women entrepreneurs and they should avail this opportunity on priority basis and prove their mettle in real estate and its allied lines as developer.

This was stated by Rubina Amjad 

The President of the FWCCI was speaking to the participants of the ‘Boss Ladies expo-2022’ at the auditorium of the FCCI.

She said that the FWCCI is the pioneer in the country’s women chambers to tap this potential sector for women in real estate business, which is why the expo has first ever been organized in the region.

She said that the real estate sector has a value of US Dollar 300 to 400 billion and its contribution in the national GDP is around 5%.

Mian Muhammad Idrees, the former President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) spoke at the function and said that it is a new area for women where they could be encouraged and convinced to get knowledge, initiate and utilize their potential.

He said that in developed countries, women contribute a lot to economic development. FWCCI should organize such activities in order to create awareness among the female community because of the example of regional countries as Sri Lanka, Bangladesh, India, China, etc. Dr. is a practicing doctor FCCI President Khurram Tariq distributed certificates at the function. 

Engineer Babar Ikram Project Head Wapda City, Munaza Khurram, Danyal Sheikh, Haniah Javed, Sidra Hussain, Iram Riaz, Alina Kazmi, Mariam Atif, Rukhsana Kausar, Mariam Waqas, Mehvish Zara Khan and others also spoke on the occasion.

Reference:Urdu Point

The LDA’s governing body has approved new development charges for the Jinnah and Iqbal sectors, according to the LDA’s official Facebook page.

The sixth meeting of the LDA’s governing board was chaired by the Punjab Chief Minister. The third balloting for residential plots in the Jinnah and Iqbal sectors will take place with the new pricing. In addition to other terms and conditions, the development charges are also subject to a potential rise in development expenditure.

The news report says the charges could be increased after the development work is over.

The governing body also took the following decisions:

• Mosques are exempt from paying sewage fees.
• Formation of a “Settlement Committee” to settle issues in LDA-managed projects.
• The board approved an improved LDA Avenue-1 project layout plan.
• All apartment projects in the city have to provide roof gardens and car parking facilities.
• Schools may have maximum vertical heights of up to 48 feet, but they will not be allowed on roads that are more than 30 feet wide.  

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