Urbanisation and Its Impact on the Pakistani Real Estate Industry

January 11, 2022

The real estate sector is one of Pakistan’s largest industries, contributing to approximately 20% of GDP. The industry has been growing at a rate of more than 10% per annum for many years. This growth was mainly driven by the government’s efforts to provide housing to its citizens. However, in recent times, this growth has slowed down as foreign direct investment (FDI) into the country has declined. Furthermore, most of the projects being built are not affordable by the average Pakistani citizen. The result is that the industry is now facing a slowdown, which may soon turn into an economic crisis. 

The main reason behind the slowdown in the industry is the increase in the cost of construction materials such as cement, steel and other building materials. As a result, developers are finding it difficult to build new homes at affordable prices. 

Another factor that is affecting the industry is the change in consumer preferences due to urbanisation. Urbanisation is a process where people move from rural areas to cities in search of better living conditions. In Pakistan, most people who migrate to cities do so in search of employment opportunities. However, these migrants also bring with them their own preferences and tastes. This has resulted in a shift away from traditional styles of architecture towards modern designs. It is estimated that 70% of the current population resides in urban areas, which means that only 30% of the population still lives in rural areas. Moreover, the majority of the remaining rural population will be moving to cities within the next decade or two. 

This migration to cities has led to a decline in demand for houses in rural areas. Many people are opting to stay in apartments instead of buying houses, even though they may be located in less desirable areas. These changes have made it difficult for property developers to sell land in rural areas. Furthermore, the increased competition among developers is also impacting sales. This is because it is becoming increasingly difficult for any single developer to compete against the multiple players in the market. 

The result of all this is that there is a shortage of residential properties in major cities. The average price of a house in Karachi has increased by 60% over the last five years, while the price of a house in Lahore has gone up by 100%. 

The effect of this situation on the real estate sector can be clearly seen from the fact that new home sales in both cities have dropped significantly over the past few months. According to reports, sales of newly constructed flats in Karachi fell by 26%, whereas in Lahore, sales dropped by 41%. This drop in sales has resulted in a fall in profits for the developers. The real estate developers are now faced with the problem of selling off existing stock at lower prices. If this trend continues, the industry will suffer severe losses in the near future. 

There is another important issue related to the real estate sector that needs to be addressed. Many people are migrating to cities in search of jobs. However, very few of these migrants find permanent employment, resulting in a large number of jobless young men roaming the streets. These young men often become a source of trouble for society, especially in the larger cities. This is because many of them resort to crime to earn money. 

This is the reason why the government is planning to develop some of the unoccupied plots of land in big cities, so that these plots can be used for providing shelter to the homeless. 

In order to make the industry sustainable, it is necessary to address the issues discussed above. The government should encourage FDI in the real estate sector and reduce taxes on developers. At the same time, it should provide incentives to buyers for purchasing new homes. Finally, the government should look into creating jobs in rural areas. 

Final Words 

Real estate is one of the fastest growing sectors in Pakistan. However, the industry is facing serious challenges due to various factors. The government should take immediate steps to resolve these problems. 

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