Real estate development and the youth

Integrating modern technologies like digital platforms for property listings and online transaction systems can make the sector more accessible

Real estate development and the youth

In recent years, the real estate sector, once a robust pillar of the national economy, has faced significant challenges. Some of these challenges have cascading effects, especially on the younger demographic, who are integral to the nation’s future, 64 percent of the population being younger than 30 years old.

Underperformance by the sector has not only influenced market dynamics but also created significant hurdles for the country’s youth, impacting their economic opportunities and societal roles.

Today the real estate sector in Pakistan is a shadow of its former self. It is faced with a myriad challenges that have stifled its growth and appeal. The sector has been significantly affected by political turmoil, in particular the overthrow of the Pakistan Tehreek-i-Insaf government in 2022. The political events since then have further eroded investor confidence, particularly non-resident Pakistanis.

Economic challenges like high inflation, sluggish GDP growth and high lending rates have further compounded the difficulties in the real estate market. International geopolitical tensions and the global economic climate, including issues related to countries, such as Russia and China, have also impacted the real estate market in Pakistan. High global connectivity means that external economic shocks can have a large ripple effect on the local real estate sector.

Pakistan has a substantial housing deficit, particularly in urban areas. The rising cost of construction and high interest rates make addressing this shortage challenging, impacting the availability of affordable housing. Specifically, the prices of construction materials have seen significant raises. For example, the cost of steel has risen by 20 percent. A cement bag now costs Rs 1,035-1,045. Additionally, the withholding tax on the sector has been raised to 7 percent, further raising project costs and reducing profit margins for contractors.

The pandemic-induced shift towards remote work has changed the demand for office spaces, leading to a need for adaptation in the commercial real estate sector. This includes repurposing outdated office buildings and making office spaces more appealing to attract employees back to physical workspaces.

The real estate sector, like many others, is experiencing a labour shortage as baby boomer population is ageing and the younger professionals have more diverse preferences. This has implications for construction projects and real estate development.

Adoption of new technologies, including artificial intelligence, is becoming crucial in the real estate sector. These technologies are revolutionising data collection, property assessment and market analysis, presenting both challenges and opportunities for industry professionals.

Changing consumer preferences, particularly among Millennials and Gen Z, are influencing the real estate market. Adapting to these shifts is crucial for realtors and developers to ensure that their strategies align with the evolving demands of these demographic groups. The regulatory oversight is weak and master planning inadequate.

The real estate sector is currently governed by a combination of federal and provincial laws. These regulations often lack consistency and enforcement. The existing frameworks, such as the Real Estate Development and Regulation Act, have significant loopholes that allow corruption and mismanagement. The absence of a centralised regulatory authority complicates oversight, leaving room for illegal practices and unapproved developments.

The repercussions of these challenges are profound. Property prices, once soaring, have either plateaued or declined in several regions, affecting the market’s vibrancy. The construction industry, closely linked to the real estate, has also experienced a slowdown, leading to reduced job opportunities. These economic factors have culminated in a real estate market that is not only underperforming but is also less accessible to a significant portion of the population, particularly the youth.

As the real estate sector struggles, the economic avenues available to young Pakistanis become more crowded. Those seeking to invest in property face an uphill battle in accumulating the necessary capital. The slowdown in the sector has also affected the job market, diminishing career opportunities in fields directly or indirectly related to the real estate.

The underperformance of Pakistan’s real estate sector has profound implications for its youth, impacting both their immediate economic circumstances and long-term societal roles. Housing affordability is a primary concern. With the economic instability affecting the real estate market, young people find themselves priced out, unable to afford homes in urban or suburban areas.

This challenge is exacerbated by a general lack of affordable housing schemes and financial support systems tailored to the needs of the younger generation. Employment prospects too are impacted. This not only affects their immediate earning potential but also hinders their career progression and skill development.

Young people, traditionally seen as the future homeowners and investors, are finding it increasingly difficult to invest in property, a key component of wealth accumulation in Pakistan. This shift could lead to longer-term changes in family structures, societal norms and economic behaviours, as the youth may have to delay or forego traditional milestones like home ownership.

Moreover, the broader job market suffers as the real estate sector, a significant economic driver, underperforms. This leads to a ripple effect, where reduced economic activity in real estate impacts related sectors like retail, manufacturing of building materials and financial services, further constricting the opportunities available to the youth.

The future of Pakistan’s real estate sector, while currently clouded by various challenges, still holds potential for positive change. This change hinges on strategic reforms and innovative solutions that can rejuvenate the sector and, by extension, provide relief and opportunities for the youth. A key area of focus should be the introduction of more inclusive and affordable housing projects.

Government initiatives that provide financial subsidies, lower interest rates for young homebuyers and partnerships with private developers to create affordable housing could be effective. Such measures would not only make housing more accessible to the youth but also stimulate market demand.

Revamping regulatory frameworks to streamline property ownership processes and reduce bureaucratic hurdles can also instil confidence among young investors. Transparency in transactions and a more stable policy environment are essential to attract both domestic and foreign investment.

Integrating modern technologies like digital platforms for property listings, virtual tours and online transaction systems can make the sector more accessible and appealing to the tech-savvy youth. Such modernisation can also improve market efficiencies and transparency. Encouraging entrepreneurship and start-ups in the real estate sector can also be a game changer.

Young entrepreneurs, with innovative ideas for affordable housing, green buildings, or real estate tech solutions, should be supported through funding, mentorships and policy incentives. Addressing these areas can not only lead to the revitalisation of the real estate sector but also open up numerous opportunities for the youth. It’s a pathway to ensuring that the younger generation can partake in and benefit from the growth of this crucial sector.

Policy reforms, market stimulation measures and an embrace of technological advancements have the potential to revive the real estate sector and empower the youth, ensuring that they have the opportunities and resources needed to thrive in the evolving economic landscape.

The writer is the CEO of ZAKCasa and Verde as well as the managing partner of the law firm Lex Mercatoria.

Real estate development and the youth