18/10/2024
"Real Estate is a dead investment"
A sentiment shared by a lot of people who have invested in the Real Estate market of Pakistan and a lot of people who haven't yet invested, but they are too afraid to take a step.
It's easy to fall in many a traps in Real Estate market, and it's not just in Pakistan, this is a world wide problem with bigger investments.
The biggest one of which is "Herd Mentality". Yes, you've probably heard this term in the past "COVID" situation being hurled around a lot. As long as we are human and as long as we associate to a society, we will be guided, in one way or another, by this intuition of following our friends and family. A domino effect, either disastrous, or a blessing. One bad investment is enough to make you hate Real Estate forever (The stakes are just too high) but on the other hand, the same investment, when fruitful can open doors to so many opportunities.
But how to forecast how an opportunity will turn out to be?
There are a lot of factors in play, someone not observing them can easily become the victim of "Real Estate is a Dead Investment" Rhetoric.
Foreign Investments:
Pakistan has seen an YoY increase of 189% in July 2024 from investments including FDI, portfolio investment and foreign public investments from sources such as China under the CPEC and Gulf Countries. These investments are a basis of urbanization which in turn empowers the Real Estate sector as well.
Interest Rate (KIBOR):
With the KIBOR rate currently going at 17% (at the time of writing this) from 22% in January 2024, and it is expected to fall more in November - we're expecting a KIBOR rate by the end of this year to be somewhere around 13% - 12%. Money will definitely start making rounds in the economic machinery once again which empowers the only sector in the world that never stops - Real Estate.
Losers and Winners:
Real Estate isn't just Houses, Shops, Plots or Offices and Buildings; it's a combination of all of these. Like any market, it has its losers and winners. This year, the biggest loser in the Real Estate Market was the residential sector. They were hard to buy and even harder to sell. People are still bearing the loss from the residential industry.
Regional Malls across major cities on the other hand have held a high occupancy rate.
Of the major sectors within real estate, the office sector has continued to show strong demand where MNCs and large local groups are continuing to demand premium office developments that are managed well and offer Grade-A facilities.
Inflation:
With inflation, GDP and unemployment rise and drops the real estate market. Here are a few statistics to show that Pakistan has slightly improved from the last year with inflation from 29.2% in 2023 to 24.5% in 2024 which is further speculated to drop by 11.7% in 2025.
Likewise the GDP being marked at -0.2% in 2023 currently stands at 2.4% and is further speculated to reach 3.5% by 2025. Pakistan's foreign exchange also rose from $9Billion to $14Billion in June 2024. And with the latest deals struck at SCO, it is only looking more promising.
Demand:
Always invest where the demand lies, not where you might think is the right place to invest. Herd Mentality again plays a huge role in these kinds of behaviors. The future market is in demand of Hospitality, Offices and Retail. A keen eye on national and business news can easily give you an insight into where to invest next.
A Case Study:
A realtor is trying to convince a client that a hotel that lies 5kms from the Islamabad Airport is the best investment opportunity because of the constant flights incoming and outgoing in the airport, as he presents his reason. Now one might think it's only logical to invest in a hotel near an airport in the capital of a city, but there's one major flaw with this reasoning.
Islamabad has no transit flights.
There are no connecting flights via Islamabad to, or from other countries. People either exit or enter Islamabad and that's it. For such a hotel - an AIRPORT should be the last of its unique selling points because it won't add to the footfall from the airport anyway.
Such an investment for such an investor is a "dead investment". Something that he'll be sitting with for quiet a while and telling other people not to in invest in Real Estate because even if such a seemingly lucrative opportunity wielded no return so nothing else might in his opinion.
But now we know why such an investment is a dead investment.
Stay informed, stay ahead of the curve.
