Can government deliver affordable houses? Experts weigh in

KARACHI: Pakistan’s new budget aims to boost the real estate sector with a focus on affordable housing, but clarity on tackling housing shortages hinges on the upcoming low-cost housing scheme.

The Shehbaz Sharif government has announced a set of incentives for the property sector in Budget FY26. This includes a total allocation of Rs10 billion in subsidies for the housing sector. Specifically, Rs5 billion is earmarked for direct housing support, while another Rs5 billion is allocated for a markup subsidy on low-cost housing. This initiative aims to build 200,000 homes for lower and middle-income segments of society.

Policymakers are focused on expanding access to mortgage financing. So, they have introduced a proportionate tax credit on loans obtained for the construction and acquisition of houses up to 250 square yards and flats of up to 2,000 square feet. Furthermore, the government plans to eliminate the federal excise duty (FED) of up to 7.0 per cent and reduce the advance tax on the purchase of immovable property by 150 basis points (bps). However, the advance tax on the sale of immovable property will increase by 150bps.

As the next fiscal year begins next month, households, builders and the real estate market are awaiting the State Bank of Pakistan’s rollout of the low-cost housing scheme and the introduction of a framework for mortgage financing.

“The allocated funds under the housing subsidy in the FY26 budget could support the construction of over 40,000 homes if utilised efficiently. However, this remains minimal compared to Pakistan’s annual incremental housing demand of over half a million units,” said Awais Ashraf, director of research at AKD Securities Limited.

Pakistan’s housing crisis is worsening due to rapid population growth, urbanisation, and a significant decline in people’s purchasing power. A report from the House Building Finance Company Limited indicates that housing is generally considered affordable if it costs no more than 30 per cent of a household’s gross income, including rent or mortgage payments and essential utilities.

Currently, many households in Pakistan face relatively high housing expenditures, leaving little room for savings. Even with low interest rates, high property prices compared to incomes can make homeownership unattainable for many Pakistanis.

“The IMF is against indirect subsidies, not direct subsidies, whereas increasing room due to robust growth in tax revenues and reduction in interest cost will make room for these subsidies,” Ashraf added.

But will the government’s plans actually make much difference? Or could they end up causing the same issues that led to the abrupt suspension of the ‘Mera Pakistan Mera Ghar’ programme in 2022, following pressure from the International Monetary Fund (IMF) to cut subsidy expenses?

Dr Anosh Ahmed, a US-based real estate investor, believes that this budget offers direct and indirect support across the entire property ecosystem. The Rs5 billion housing subsidy will help Naya Pakistan housing scheme beneficiaries, while the reinstated tax credit on mortgage facilities will ease long-term borrowing for middle-income households.

“The removal of excise duty and the lowered withholding taxes will further reduce the cost of buying and selling property,” Ahmed said. “These steps will increase confidence among both developers and end-users, stimulate construction activity, and improve the pace of real estate transactions. All of this is good for the economy -- and for families hoping to build their futures,” he added.

“By lowering transaction costs and increasing liquidity in the market, the government is taking a meaningful step toward formalising and scaling Pakistan’s property landscape. It is a bold and necessary move at a critical time.”

However, Ahmed states that there is a need to ensure that recent restrictions on non-filers don’t deter investment flows, particularly from overseas Pakistanis who may not yet be integrated into the local tax system.

He commends the fiscal discipline shown in the budget and the clear roadmap for growth. With the cost of doing business lower and the government’s policy direction clear, this is a good time to move forward with housing and infrastructure projects.

Syed Hussain Haider, chief investment officer at JS Investments Limited, says that the relief measures in FY26 signal intent, particularly through the removal of the FED and the reinstatement of the mortgage tax credit. However, the package lacks coherence and falls short of a broader strategic framework.

“There is a conspicuous absence of support for institutionalising the sector; for instance, no progress was made once again on extending the capital gains tax exemption under Clause 99A for REITs, a key enabler for formal capital formation in real estate,” Haider said.

“The continued policy fickleness remains a major impediment to long-term development. Moreover, token allocations, like the Rs5 billion housing subsidy, offer little in the face of a severe erosion in purchasing power,” he said.

“What is truly needed is a comprehensive economic overhaul that allows equity, fairness, and meritocracy to take root, alongside a paradigm shift in the social sector, because, in the end, everything is deeply interconnected,” he added.

According to Haider, these steps announced in the budget modestly improve transaction dynamics and affordability, particularly at the lower end. Reintroducing the mortgage tax credit and housing subsidy could encourage the uptake of formal financing channels; however, the scale of support remains limited. He thinks that without complementary structural reforms, especially to deepen REIT markets and incentivise documented activity, the sector’s true potential will remain untapped.

Experts noted that while there is not a distinct policy aimed solely at attracting foreign investors to real estate, budgetary reforms signal opportunities to overseas Pakistanis and international stakeholders. Improved transaction tax rationalisation and stronger documentation enforcement could enhance transparency, a crucial factor for attracting institutional capital.