Can inflation do any good to Pakistan real estate sector?

Article Written By: William King

Every one of us is familiar with the threatening effect of inflation on Pakistan economy. Every day, we see public complaining about the sharp rise in prices and demanding relief against it. Not only food prices are escalating but the prices of non-food items like Pakistan properties are also soaring very high. But why every one of us dislikes inflation without knowing the fact that it can also have a lot of positive affects on Pakistani economy!

If we neglect the darker part of inflation, we will come to know that inflation has been really good to Pakistan real estate sector. Mostly inflation raises prices of Pakistan properties to the extent that it becomes impossible for the majority of the people to buy their dream houses. But this only happens in case of hyper inflation, when the demand of properties rises but the supply remains constant. This situation has not yet arrived in Pakistan. Many new units are delivered to this sector on regular basis and many new development schemes are being introduced from time to time. So how can someone claim that the supply is constant?

In Pakistan, the inflation can be termed as running inflation” which means that too many people are chasing too few houses. The increased demand has motivated many investors to mobilize their savings and invest in Pakistan real estate sector. Also, many investors think that inflation is constantly rising and investing in this sector right now can be a very wise idea.

If they buy right now, their property value will double in the coming years which will leave them with hefty profits on sale. Thus, the rising investment is improving the overall performance of this sector. This is one of the positive effects of inflation on Pakistan real estate sector.

Inflation also raises the revenues of the government. When companies sell their products at higher prices, they earn higher revenues. Increase in profit or their revenue results in higher taxes which makes the government s revenue. As a result, budgets of the country increases. Same is the case with Pakistan, though deficit in BOP and receipt and payments accounts is due to various other reasons. Yet inflation is one of the reasons, playing its role in improving these accounts over time. Thus, government is now able to allocate more amounts on Pakistan real estate sector.

These funds are been granted to SBP to facilitate construction sector financing. Recently, SBP has taken steps to give a boost to large scale construction activities by introducing unique financing products and establishing Pakistan mortgage Refinance Company.

The crux of the matter is that inflation has been doing well to Lahore, Islamabad, Karachi real estate up till now but it is not sure that the same trend will continue in future. Though, inflation has few positive impacts yet its devastating role in destroying the economies cannot be neglected. The pace, with which the inflation is rising, can soon attain the status of hyper inflation when no one would be able to buy Pakistan properties.

About the Author

William King is the director of Karachi Real Estate and Pakistan Real Estate.

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