The year 2024 ended with challenging times for Pakistan’s real estate sector. It was a year full of chaos and uncertainty, driven mainly by political and economic instability. Higher inflation, record-high interest rates, and ruthless tax policies took a heavy toll on the industry. While many new projects were launched during the year, only a few managed to attract investors or generate positive activity. Many businesses shut down, and numerous projects were halted. Despite these hardships, we survived the year with hope for a brighter future in 2025.
The downturn didn’t begin in 2024, but this year plunged the already struggling industry into severe challenges. If we were to list the factors contributing to the downfall, it would include both external factors and internal issues within the local real estate sector. The lack of government oversight gave rise to irregularities and malpractices in property sector resulting in property frauds and heavy losses to the common buyers.
Hard times are not always bad. They help you identify your mistakes and take corrective measures. In this article, we are going to discuss the overall real estate market performance in 2024, and explain the factors contributing to the situation. Additionally, we will discuss about the investment prospects in 2025 and suggest which properties are likely to perform better.
Market Performance in 2024
The year 2024 started with some hopes of improvement, especially due to the elections scheduled on 8th of February. The market actually started showing improvement in the 2nd half of January 2024 till the date of Election, but unfortunately, the whole exercise opened doors to a new era of chaos in the country resulting in a total mess of the economy including the real estate sector.
Established societies like DHA, Bahria Town, Multi Gardens, and Top City-1 experienced significantly low transactions with substantial decrease in property prices, though real estate in local areas remained mostly stable or grew based on the genuine demand. New societies, especially those selling files, such as New Metro City, Nova City, Rudn Enclave, Capital Smart City, Kingdom Valley, Blue World City and dozens more suffered the most with prices sliding down by 30% to 70% causing significant losses for investors. Even in reputable schemes and government sectors, transaction volumes dropped as end-users hesitated to buy and build amid the prevailing uncertainty.
While investors had dared investing in new promising projects in 2023 hoping for better returns, but even the good investments caused heavy losses, mainly due to lack of buyer’s interest and plethora of investment options. Therefore, selling new projects became a challenge in 2024 as investors lost all hopes due to past experiences.
If we calculate the average decline in property prices as compared with 2023, it’s around 20% to 30% in developed schemes for physical properties including plots and houses. Whereas, new schemes with file systems have experienced about 50% to 70% decline in their property value.
Under-construction residential and commercial projects have also seen some decline in their demand due to mistrust of investors on the builders, especially due to multiple rental scams. On the other hand, ready apartments and shops have performed better comparatively, which reflects that end-buyers with limited budget were active throughout the year and these properties have seen significant demand.
Factors Causing the Downfall
There could be many internal or external factors that may have contributed to the overall market situation of the real estate sector in Pakistan, so we have identified and listed below some most important factors that took heavy toll on the market.
Political Instability:
The situation deteriorated after the February 2024 elections, leading to social unrest. Investors typically avoid committing funds in such risky environments.
High Inflation:
Increased living expenses reduced people’s savings, leaving less capital available for real estate investments.
High Interest Rates:
With rates reaching up to 22%, many preferred the safety of bank deposits offering high returns, diverting funds away from property investments.
Economic Instability:
The overall economy contracted, leading to higher production costs, layoffs, and a lack of new investments. This tight fiscal environment adversely affected real estate, with no expansions and limited liquidity in the market.
Property Frauds:
Numerous developers collected money from investors, promising high monthly returns. However, many projects went bankrupt, halted, or the developers absconded, resulting in significant financial losses and eroding public trust, especially among overseas investors.
Oversupply of Files:
Private housing societies sold excessive numbers of files, far exceeding the actual number of plots available. For instance, a society designed for 1,000 plots might sell over 10,000 files. This oversupply led to a market correction, with file prices dropping significantly when demand ceased, causing substantial losses for buyers.
Unstable Currency:
Overseas investors who purchased property when the Pakistani Rupee was stronger faced losses due to currency depreciation. Although the currency has stabilized recently, the economy remains fragile, deterring potential investments.
High Property Taxes:
The government’s increase in property taxes, including a 3% withholding tax on purchases, 3% Federal Excise Duty (FED), and local stamp duties, made property acquisitions more expensive. These higher costs reduced the attractiveness of real estate investments.
Overseas Pakistanis’ Reluctance:
Overseas Pakistanis would contribute to about 50% of the property transactions as they were actively involved in buying and selling of properties and creating physical assets in Pakistan. Political instability, currency depreciation, and property frauds have made overseas Pakistanis hesitant to invest in the Country’s real estate market.
Market Correction:
Between 2020 and 2022, the market experienced significant growth, with property values in some areas increasing by 200% to 500%. This rapid appreciation led to speculative investments, particularly in property files sold by various housing schemes such as Lahore Smart City, Etihad Town Phase 2, and New Metro City etc. When the market corrected, demand plummeted, and prices fell sharply, erasing the inflated profits and leaving investors with substantial losses. The correction phase started in early 2023 and continued till the end of 2024 with worthy properties attaining their fair value, and worthless properties, especially files, losing more than half of their value.
Investment Prospects in 2025
Despite the challenges faced in 2024, there are reasons to be cautiously optimistic about the real estate market in 2025. One major reason is that new year brings new hopes and energy. While hope is never a good investment strategy, we have some solid reasons to hope that 2025 is going to be a positive year for real estate sector in Pakistan based on the following factors:
Economic Stability:
Pakistan’s economy is showing some signs of improvement and stability on macro-economic level, with our fiscal deficit improving, inflation going down, and interest rates being reduced significantly. While the economy is still fragile, the government is prepping for an incentive package and tax cuts for the real estate sector that would incentivize real estate investments, especially by overseas Pakistanis.
Improving Political Climate:
The political situation appears to be settling, allowing investors to make more confident forecasts and consider re-entering the market. Once the political unrest comes to an end, there are high chances that overall business environment in the country will improve.
Decreasing Interest Rates:
Interest rates have declined to 13%, with further reductions anticipated. As a result, bank deposits become less attractive, prompting investors to seek better returns elsewhere. Best alternative option to invest savings in Pakistan is real estate, so there is strong likelihood of investors returning to the real estate market and make transactions.
Stock Market Volatility:
While the Pakistan Stock Exchange experienced significant growth in 2024, with the KSE-100 Index rising by approximately 80%, such rapid increases can lead to concerns about market bubbles and potential corrections. Investors may perceive the stock market as overvalued and risky at this point, making real estate a more stable and attractive investment alternative.
Investment Guidelines for 2025
Bad times help you learn bitter yet useful lessons. Instead of blindly following the market trends and ending up in a bad situation, you have to stop getting influenced by honey traps, rosy pictures, attractive ads, influencers’ branding, big offices, big fleet of cars, tall claims and baseless future projections. You have to expand your knowledgebase, learn from your past experiences and gauge your risks first rather than focusing on potential returns claimed by marketing persons.
Contact more experts in the market rather than depending on a single agent and gather deeper insight about the property. Don’t be swayed by discounts, incentive offers, urgent deals, or fancy talks; instead, focus on the property’s intrinsic value. In short, you have to be very vigilant before committing to any real estate investment in 2025.
Following are some guidelines from Manahil Estate for investment in 2025:
Government Schemes:
It is always safe and recommended to invest in good projects launched by the government housing authorities, such as CDA sectors and housing schemes, LDA housing schemes, KDA housing schemes and similar government-backed residential or commercial projects. While the government projects hardly deliver on time, they are normally safe to invest with consistent demand in the market.
Reputable Developers:
Projects by established developers like Bahria Town and DHA are considered safe bets, especially DHA, which has enhanced its development pace and quality, attracting a large number of investors nationwide.
No Blind Investments:
Avoid indulging in blind investments just because your friends or relatives have invested or suggested you to invest. Do your homework properly, and cross check the information from market sources, and if possible, from government departments. Even if the property exists on ground, do proper inspection, check all paper work, and get fair evaluation of the market before making any commitment.
Physical Properties Over Files:
In private schemes, it’s prudent to invest in tangible properties that physically exist, are government-approved, and can be legally transferred. Avoid engaging in the file system of private schemes, as it carries higher risks.
Built-Up Properties:
Constructed properties have maintained their value better, even as land prices declined, due to rising construction costs. Investing in houses, apartments, or commercial shops in well-established areas can offer more stability and potential appreciation.
Commercial Spaces in Malls:
Purchasing shops in major malls presents a safe investment opportunity, providing both value appreciation and regular rental income over time.
Conclusion
The real estate sector in Pakistan faced significant challenges in 2024 due to a combination of political instability, heavy taxation, economic hardships, and internal malpractices. However, with anticipated economic stabilization, government incentives, and improved political conditions, 2025 holds promise for recovery. Investors are advised to exercise due diligence, prioritize investments in reputable and government-backed projects, and remain cautious of high-risk ventures to navigate the evolving landscape successfully.