How Will The Russia-Ukraine Conflict Impact The Real Estate Sector

March 7, 2022

We are not talking about an immediate crisis, but the impact will be a long term one. In this article we explain how it could affect investors in the short term and then give our view on what to do with your portfolio. As of now, the conflict seems to have broken out between Ukraine’s pro-Western government and its eastern regions which had voted for closer ties with Russia. This was triggered by the Ukrainian government’s plan to sign a trade agreement with the European Union (EU) rather than the Russia-led Eurasian Economic Community. With the EU being much more economically liberal, the eastern regions were left behind. 

However, there is more to the story. It appears as if there are powerful forces within the Eastern Ukraine that want the region to become part of Russia again. They feel neglected by the central government and believe they should be able to decide their own future without interference from Kiev or Brussels. This is why the recent developments between Ukraine and Russia are so surprising. We had been expecting some sort of confrontation, but not outright war. 

What does this mean for us? In the short term, nothing much. For most of you reading this article, the conflict has probably not even registered on your radar screen. However, it might turn into something bigger if the situation escalates further. 

If you want to invest in real estate, you need to ask yourself two questions: 

  • 1. Where would I go in case of a major conflict? 
  • 2. What is the likelihood of such an event happening?  

Even though the chances of an all-out war between Russia and Ukraine seem remote, the tension is rising. If the tensions escalate any further, it is likely that the border will close and international flights may be diverted elsewhere. This means that many people living on either side of the border may need to take a detour to reach their home country. This is exactly the scenario we saw when the US and Canada came to blows during the Cold War. During times of war, airports are closed, causing a huge disruption in travel. Airports usually remain open, but flights are diverted or cancelled. The airport closest to the Russian/Ukrainian border is Dnepropetrovsk International Airport (DNK), which serves the city of Donetsk, Ukraine. It is only 1 hour 45 minutes away by car from the city of Kharkiv, Ukraine.  

The good news is that the conflict so far has been limited to skirmishes. So, the probability of a full blown war between these countries seems low. But in case things escalate, here is where you can find an answer to question number 2. As of now, the conflict seems to be confined within the borders of Ukraine. However, the risk is still present. That said, as the odds of a full scale war seem slim at this point, we do not see a major problem arising from this conflict. While tensions may increase, we doubt they will escalate to the point of shutting down international flights.  

What Does This Mean For The Pakistani Real Estate Sector? 

As an investor in Pakistan, you need to understand that the conflict is unlikely to spread beyond Ukraine. Although the conflict may end up costing lives, it will not lead to another global war like the Cold War. That said, if the conflict spreads, you need to be prepared. Do you know where you would go if you had to leave your home country? If the conflict begins to affect you directly, you must have a place to run to. 

So, while we don’t foresee a major global war breaking out, you should always consider the possibility because it is possible. And since the conflict in Ukraine seems unlikely to spread, you should try to keep your portfolio diversified. Avoid putting all your eggs in one basket. 

For those of you who are interested in investing in the Karachi real estate market, you can still get great deals. However, you should avoid making any purchases until things settle down. We expect the prices to rise once the conflict has died down. 

In Conclusion 

While the conflict in Ukraine is unlikely to spill over into other countries, you should nevertheless be prepared for the worst. You never know when a natural disaster or an unforeseen event could happen. Even though the conflict is unlikely to have a major impact on the real estate sector, you should be ready to deal with any eventuality. The best way to prepare is to make sure you have a backup plan. 

Do you think the Ukraine conflict will affect the real estate sector in Pakistan? Let us know in the comments section below. 

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