FACTS ON KARACHI REAL ESTATE MARKET
GLOBAL REVIEW ON KARACHI REAL ESTATE MARKET
The global real estate market is continually rising with YoY growth of 3.2% in 2021. Asia Pacific was the largest region in the global realty market, accounting for 40% of the market in CY20. Western Europe was the second largest region accumulating 24% of the global market. Africa was the smallest region of them all.
The Real Estate Sector represents nearly 4% of the equity market capitalization of the S&P 1500. Equity REITs add up to 98% of the equity market capitalization of this sector. Property management and brokerage companies make up the remainder of the market.
Uncertainty prevailed in the office market at the end of 2020 as tenants and owners faced rapidly changing conditions such as a rise in work from home and concerns about COVID-19 waves in developing countries. Global leasing volumes were recorded at 43% lower in 2020 as compared to a year earlier as momentum in the market slowed with the pandemic outbreak combined with heavier restrictions.
With a strong vaccine role out and precautionary measures in North America and parts of Europe, certain countries are expected to witness an upward shift in the demand for property investment in the second half of 2021.
REAL ESTATE SECTOR OVERVIEW
This sector comprises developed or off-plan projects, housing or commercial projects which include commercial markets or multi-story buildings (commercial or residential), shopping centers, restaurants, hotels, industrial projects, etc.
Karachi’s Real Estate Sector includes companies engaged in the development and operations of this district. It also comprises companies offering realty-related services and Real Estate Investment Trusts (REITs) with great ROI.
Customized after mutual funds, the companies registered as REITs with the Securities and Exchange Commission of Pakistan (SECP) can pool the capital from numerous investors. This in turn makes it possible for individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves. According to SECP following are three types of REITs;
- Developmental REIT Scheme: A REIT Scheme established for investment in real estate with the object of development, construction, and refurbishment of land and property for industrial, commercial, residential purposes,s or a combination thereof.
- Rental REIT Scheme: A REIT Scheme was introduced with the objective of making an investment in industrial, commercial, or residential real estate with the purpose of generating rental income from it.
- Hybrid REIT Scheme: A REIT Scheme, which is a mixture of both, a developmental component as well as a rental component.
SUPPLY FOR REAL ESTATE
The supply side of this division predominantly consists of offices, plots, residential property, and houses. Pakistan housing infrastructure is mostly based on suburbs as well as urban futuristic designs. Although a recent hike in apartment buildings can be seen it is restricted to only major metropolitan cities such as Karachi, Lahore, and even Islamabad.
Due to increasing demand for houses, their prices escalated from PKR 9,894 per Sq. ft. in 2016 to PKR 12,324 sq. ft. in 2021. Residential property prices also inflated from PKR 5,092 sq. ft. to PKR 6,683 sq. ft. in the years 2016 to 2021 whereas prices of plots rose from PKR 3,180 sq. ft. to PKR 3,984 sq. ft. during the same period.
The effect of the pandemic has led to sluggish activity in the construction of real estate and activity came to a near halt during the COVID-19 lockdown in the last quarter of 2020. In a midst of the third corona wave and lockdown, the sector’s activity diminished and prices rose as observed in the year 2021.
In 2020, two new REIT management companies (RMCs) were granted licenses to undertake REIT management services, raising the number of RMCs to seven. Currently, only one REIT is listed on Pakistan Stock Exchange.
KARACHI REAL ESTATE MARKET TRENDS
In the past five years, the stock equity market has averaged a 7% return. Similarly, gold investors had an average return of about 16% from 2016 till 2020, whereas a five-year Public Investment Board (PIB) is currently yielding over 9%.
Despite the excellent profits in other sectors, many Pakistani investors prefer to invest in real estate. They do so since property investments yield a far higher profit. A typical example is the Karachi real estate market. Property prices in the country’s major metropolitan cities have increased rapidly. The unforeseen rise in the city’s inhabitants due to uncontrolled rural-urban migration has increased the need for housing and shelter.
FUTURE OF REAL ESTATE INDUSTRY IN KARACHI
Despite the daily hustle and bustle, the real estate market of Karachi always provided great investment opportunities supplied to the construction sector.
Recently, after the pandemic, Karachi’s property market is showing a more upward progression in terms of costs in the numerous residential societies of the city.
As a result, property prices have hiked extraordinarily in the past five years and it is anticipated to continue rising in the near future. However, with these shortcomings comes a great return on investment.
