THE government needs to realise that its two primary goals, five million houses and 10m jobs, will remain just a dream unless the real estate sector does not revive. The global economy is projected to contract sharply by 3 per cent in 2020. The reform in the real estate industry presents a unique opportunity to revive economic growth.
Covid-19’s impact on the real state sector varied as the demand for residential flats and small houses is likely to increase whereas the demand for commercial property and luxury houses will decrease. The work-from-home concept has made the corporate world realise how they can save their operating cost/rents on commercial properties. This will also bring changes to the future planning of houses which will now include space for work. No impact is anticipated on agriculture land and plots in good, developed societies. Real estate is traditionally a low-risk viable investment for medium- & long-term investors.
Post pandemic a new development approach is needed. Building markets, opportunities and good governance will ensure economic uplift, stability and social cohesion which will lead to a sustainable and long-term solution. We can understand the significance of real estate and its snowball effect on the economy through the study of the Dubai model. Realising the need of the hour, the United Arab Emirates government initiated a 10-year residency visa programme in specific industries along with five-year retiree visas. A pickup in longer-term residency is likely to fuel demand for real estate investment.
Pakistan’s real estate market remains the backbone of its economy, with as many as 50 different industries relying on it. This sector is also the second-largest employer within the country, with the first being agriculture. Furthermore, we should not undermine the significance of real estate in towns/district level as everyone cannot afford to move to cosmopolitan cities. According to a World Bank estimate, the size of a country’s real estate assets constitutes between 60 and 70pc of the country’s total wealth. Despite these facts, real estate contributes only 2pc to the national GDP. Why is this the case?
There has been a slowdown in real estate since 2017 because of political instability, the uncertainty of economic policies, absence of incentives for the investors, the imposition of ban on non-filers to buy a property worth more than 5m and levying of high taxes. The government’s proposed reduction in taxes for the transfer of properties is very welcome. Double taxation and taxing current taxpayers motivates investors to park their wealth by purchasing properties outside Pakistan.
There is a need to follow an incremental approach in reforming the system as fast-track reforms can have negative implications for the economy, especially real estate. Another factor that contributes to the slowdown of the sector is non-utilisation of the developmental budget that led to a contraction of the construction sector.
Despite the gloomy outlook of the real estate sector, there are compelling facts that indicate that the government is trying to kick-off the sector post-Covid-19, especially for the overseas Pakistanis. The recent decision of the government to sell off state properties to overseas Pakistanis worth $15 billion is achievable if our embassies and line ministries are aligned with the prime minister’s vision. Pakistanis that have returned from abroad can invest in the real estate and construction sector.
However, before we encourage overseas Pakistanis, there is a need for a federal and provincial real estate authority in the country to reform policies and bring ease of doing business.
A demand-led employment strategy for the medium- to long-term recovery of jobs and incomes will be needed, including supporting employment creation in strategic sectors, restoring a conducive business environment, reinvigorating productivity growth, diversifying the economy and spurring structural transformation, making the best use of technological advancement.
China-Pakistan Economic Corridor is another mammoth development project that will transform the economy of Pakistan and resultantly, the real estate sector will boom in the coming years. Business and investors are now looking at Gwadar as the new hub of Pakistan. The federal government has authorised relevant authorities to carry out a digital survey of the sale and purchase of the real estate in Pakistan which will provide citizens easy access to information of all real estate.
Cognisant of today’s demands as well as those of the future, the recent announcements from the government and the Lahore High Court (LHC) are positive, however, a lot needs to be done. To restore investor confidence and for the revival of the real estate sector, I recommend the following:
1) One window operation for all kind of approvals and implementation of Naya Pakistan Housing and Development Authority Act 2020 in letter & spirit. The provincial government is working towards the necessary legislation for granting approval. Currently, bureaucrats are still indecisiveness due to involvement of the National Accountability Bureau in such matters.
2) The transparent approvals by relevant authorities without the involvement of speed money. Hundreds of cooperative societies and millions of their members are suffering due to lack of capacity to pay out of books.
3) Reforms of laws for housing societies, especially for land acquisition, as its absence leads to disputes and issues between stakeholders.
4) Further tax incentives for investors of plots/files should be introduced.
5) Effective implementations of LHC decision for enforcement of mortgage. The Supreme Court should decide the appeal as soon as possible to end uncertainty. This will encourage banks to lend tp the untapped market of house financing. We have one of the lowest mortgage-loans-to-GDP ratios in the region.
During the pandemic, out of box thinking, timely decision-making and extraordinary efforts can help minimise the catastrophic effects on the economy of our country.
The author is a senior banker and President of Alfalah Cooperative Housing Society
Published in Dawn, The Business and Finance Weekly, June 29th, 2020