The global real estate market continues to experience steady growth, with a year-on-year (YoY) increase of 3.2% in 2021. The Asia Pacific region emerged as the largest segment, representing 40% of the market in calendar year 2020 (CY20), followed by Western Europe at 24%. Conversely, Africa constituted the smallest share of the market.
Market Overview
The real estate sector is a vital component of financial markets, comprising nearly 4% of the equity market capitalization of the S&P 1500 index. Within this sector, Equity Real Estate Investment Trusts (REITs) dominate, accounting for 98% of its equity market cap, while property management and brokerage companies make up the remainder.
The COVID-19 pandemic led to significant uncertainty in the office market by the end of 2020, as both tenants and property owners adjusted to rapidly changing conditions, including the rise of remote work. Consequently, global leasing volumes decreased by 43% in 2020 compared to the previous year. However, momentum in the market began to improve in the second half of 2021, driven by successful vaccine rollouts and precautionary measures in North America and parts of Europe.
Real Estate Sector in Pakistan
The real estate sector in Pakistan includes developed and off-plan projects, covering residential, commercial, and mixed-use developments such as shopping centers, hotels, and industrial projects. In particular, Karachi is a focal point for realty development, featuring companies involved in development, operations, and real estate-related services, including REITs.
Types of REITs in Pakistan:
- Developmental REIT Scheme: Focuses on investment in real estate for development and refurbishment across various purposes.
- Rental REIT Scheme: Aims at generating rental income from investments in industrial, commercial, or residential properties.
- Hybrid REIT Scheme: Combines elements of both developmental and rental REITs.
Supply and Demand Dynamics
The supply side of the real estate market in Pakistan predominantly comprises offices, residential properties, and plots, particularly in urban centers. The demand for housing has led to a significant rise in property prices, with costs increasing from PKR 9,894 per sq. ft. in 2016 to PKR 12,324 per sq. ft. in 2021 for houses. Residential property prices also appreciated from PKR 5,092 to PKR 6,683 per sq. ft. During this timeframe, plot prices rose from PKR 3,180 to PKR 3,984 per sq. ft.
The pandemic led to a slowdown in construction activities, with extensive disruptions during the lockdown in late 2020. Despite this, property prices managed to rise, reflecting ongoing demand.
Recent Developments:
In 2020, the number of REIT management companies (RMCs) increased with two new licenses issued, bringing the total to seven, although only one REIT is currently listed on the Pakistan Stock Exchange.
Karachi Real Estate Market Trends
Despite other investment sectors showing robust returns—averaging 7% in the stock market and 16% for gold—the real estate market remains a preferred choice for many Pakistani investors. They are drawn to the significant profit potential associated with real estate, particularly in major metropolitan areas like Karachi. The increase in property prices is largely attributable to rising urbanization and migration.
Future Projections
As Karachi’s real estate market recovers from the pandemic challenges, ongoing upward trends in property prices are anticipated, particularly within various residential developments. This market resilience, alongside attractive investment opportunities, suggests a promising outlook despite potential challenges. Investors can expect considerable returns as demand continues to grow and the city’s population expands.
In summary, the real estate sector in Karachi presents a dynamic landscape filled with opportunities, underpinned by robust demand and a favorable investment climate for developers and investors alike.
