Guest Blog: How Pakistan’s political scenario affects the property market

Disclaimer: The views in the following article are of the author alone and doesn't reflects the stance of Critic Magazine's Blog

Prime Minister Nawaz Sharif’s government has had a positive impact on the real estate sector in Pakistan. The property market experienced a major boom during the third and fourth quarter of 2013, right after the general elections held in May. However, the property market went through a correction phase in the first quarter of 2014, where the prices experienced a slight dip. But, due to the efforts of the government, another real estate boom is expected soon.

A massive inflow of foreign direct investment can be seen in Pakistan. Projects such as the metro bus and train (investment from Turkey), solar project partnerships, deep sea port development (investment from China) and many other projects (investment from European countries and USA) are being developed by the government with the support of other countries. Such projects help to develop an urban infrastructure and hence increase real estate values.

Foreign investments amount to around $100 million USD in the housing and construction industry of Karachi, according to the Association of Builders and Developers of Pakistan (ABAD). At the moment, the association is organizing an exposition where around 50 foreign companies are going to participate and have a chance to interact with local builders and companies.

Another major political factor that affects the real estate sector, is the Pakistani government’s friendly relations with Saudi Arabia, which lent $1.5 billion to shore up its reserves. This cash injection boosted reserve figures and helped the rupee to stabilize which led to more foreign investment. Expats who already had properties in Pakistan, saw an increase in the prices.

Lastly, Prime Minister Nawaz Sharif’s friendly relations with India are also expected to have a positive effect on the property market. Many investors have already purchased land as part of their future strategic planning to use it for commercial means, once the trade with India starts.

Hence, the current political scenario has had a positive effect on the real estate market of Pakistan. So gear up and start investing in Pakistan’s property market.

Article by: Lamudi Journal

Editor's Comments: The above article haven't properly contextualized the term "positive effect", i.e. for whom? Any student of globalization, international monetary markets and capital flows would agree that such a boom in real estate market by virtue of foreign investment only benefits the elite minority of the country or a small group of foreign investors, which is also at the expense of the majority of the population i.e. the middle class or the poor. There are a number of case studies which proves this point, the most notable one is that of boom and bust cycle of the Asian Tigers (Indonesia, Malaysia, Singapore, Thailand, South Korea, China etc.) during late 1990s. The investment leads to first rise in property prices, and rents eventually which leads to increased variable costs for businesses, this leads to rise in prices and to cut the costs the employers resorts to downsizing... This is followed by over production in the housing and construction industry leading to an increase on the supply side, which forces the prices down to a level that the investors aren't able to recover their investments! Subsequently the investors begin to flee from the country leading to an economic shock, as the currency rate of the respective country collapses. Part 1 of Adam Curtis's documentary made for BBC titled 'All Watched Over by Machines of Loving Grace' explains this phenomenon in detail, the interview of Joseph Stieglitz, who was Head of Council of Economic Advisers during Clinton administration in that period is worth listening in this documentary. The concept of trickle down economics has also turned out to be a myth in this context, which claims that if the rich benefits then the poor also benefits due to increased economic activity and rise in employment opportunities. There is increasing evidence to confirm that this is no more true, particularly when the boom is followed by a bursting of the bubble and fleeing of the investor out of the country. Also the rich is smart enough to find ways to keep his wealth to the extent possible. The corruption in the country makes the matters even worse... For details please watch a documentary 'Inequality for All' by Robert Reich, former Labor Secretary of USA, and another award winning documentary titled 'The Four Horsemen'. With all of such evidence it is highly debatable that any influx of foreign investment under a corrupt regime would create any 'positive effect' for the massive, rather the historical experience proves otherwise.