In recent years Pakistani-American workers are increasingly looking to retire in Pakistan - AFP via Getty Images
Pakistani American Workers Look to Invest in a Growing South Asian Property Market
By Saba Fatima
Many Pakistani-American workers are increasing to look to invest in their ancestral South Asian homeland or purchase a retirement home.
According to the National Association of Homebuilders, home ownerships rates are dropping — albeit slightly. Amidst these challenges towards home ownership, many Pakistani-American workers look forward to investing in the real estate sector back home in South Asia where the sector is projected to reach a value of US$ 2.11 tn this year.
Despite all the challenges, South Asia still remains as one of the regions with highest ownership rates. Merely Pakistan contributes 2% of the global property ownership shares along with India and Nepal among big contributors. Culturally, home ownership remains important.
“For Pakistani-Americans it is natural to want to invest and purchase properties within Pakistan and Pakistani real estate markets and workers must be able to adapt to this,” said Tayyaba Rizwan, a real estate and technology analyst, “This is the future of work in real estate – finding global opportunities for mobile capital.”
Investing in South Asia remains attractive for the expatriates given their high purchasing power. Data from Pew Research Center in 2021 reflected that although South Asians make up 5.5 million of the US population, South Asians are the highest-earning ethnic minority, accounting for 29% of the Asian diaspora’s buying power in the United States. Another example of the buying power of this demographic in the United States has been the explosive growth of the sport.
Cricket is very popular with South Asians and is the fastest-growing team sport in the United States after Rugby. The T20 Cricket World Cup was recently held in the United States and the sport is receiving more attention from major media outlets .
Following a cricket team or listening to music keeps intercontinental connections strong. In Pakistan in particular, real estate companies are hoping to lure wealthy expatriates from overseas. For example, Broadway City Gwadar – a community being developed in Pakistan in Baluchistan, has promoted its product through slick roadshows in the United Kingdom and elsewhere. In Islamabad, another real estate development named Eighteen is also being developed along standards many would associate with Dubai.
Other new developments like Bahria Town, feature a miniature Eiffel Tower and Statue of Liberty, are efforts clearly meant to appeal to such expatriates. These housing societies within the real estate sector become more attractive for the expatriates given their high purchasing power.
Data from Pew Research Center in 2021 reflected that although they make up 5.5 million of the US population, South Asians are the highest-earning ethnic minority, accounting for 29% of the Asian diaspora’s buying power in the United States.
However, despite being an attractive option for investment for all the wealthy expatriates with good purchasing power, the severe challenges faced by the real estate sector as a result of political instability and economic pressure in Pakistan need to be acknowledged. Limited access to housing finance, high interest rates, and a complex legal framework are impeding the sector’s growth.
This challenge is exacerbated by a widespread lack of understanding of mortgage products, a stringent regulatory environment, and a scarcity of financial products that cater to diverse income groups.
“Pakistan is most certainly not the only country which, over the course of the last decade, has suffered from inflation, slowing GDP growth, and high-interest rates all of which place increasing stress on an already fragile banking sector. Similar economic challenges are facing states all over the world,” said Pakistani real estate executive and entrepreneur Malik Riaz, Chairman of Bahria Town.
Significant challenges have become apparent as a result of ongoing political instability alongside the economic climate for real estate investors.
“The real estate sector is valued at approximately US$ 1 trillion, and contributes around 2.5% of the country’s GDP, a significant chunk which cannot be ignored,” said Riaz. “There is currently a transformation which the real estate market in Pakistan is undergoing. And just like this transformation does not take place overnight, we should expect it to have a lasting impact on the country and not only on the real estate sector.”
A large multiple bedroom home though much smaller than its American counterparts in terms of square footage can be had for less than $100,000. It is this coupled with a low cost of living that has made Pakistan attractive. The country’s once notorious security situation is also improving.
Of course, American investors might not find a supportive environment for international companies to operate in Pakistan. Corruption and the lack of justice impede foreign investment. Pakistan ranked 133 of 180 countries according to Transparency International and its annual ranking of corruption.
Riaz said that politically motivated persecution is an “open secret” in Pakistan, with his association with former Prime Minister Imran Khan making him a target for negative media and legal campaigns aiming to tarnish his image.
“As a result, those associated with Bahria Town, including myself, shareholders, and their families, have been falsely accused of illegal activities. I should note that despite none of these accusations being confirmed by the judicial system, a media campaign has been launched against us,” said Riaz.
Inflation Woes
Inflation is an issue for American workers and increasingly a global one as well. High taxation and inflation remain significant challenges for real estate investors in Pakistan. Although Pakistan’s real estate market is characterized by moderate rental yields of 5-6% and transaction costs of around 6%, its appeal is somewhat reduced by a high corporate tax rate of 29% and a property tax rate of 5%, which deter corporate entities and long-term investors from entering the market.
The International Monetary Fund (IMF) has also emphasized on the real estate capital gains and recommended taxation of capital gains on an annual basis as well as ensuring the adequate recording of property sales.
“Inflation is a persistent economic challenge that affects various sectors, including real estate. In Pakistan, the real estate market has been significantly impacted by inflationary pressures, leading to rising property prices and shrinking profit margins for investors and developers alike,” said the Imrat Institute of Policy Studies in a recent report.
However, on the flip side, AI’s positive effects have been driving significant changes in the Pakistani real estate market, mirroring its impact on the global stage.
“I am less active in the real estate sector as a worker than I once was because I am concerned like everyone else on how AI is impacting the future of work,” said Rizwan, “still I think that people will always want that human touch when they buy a house no matter where it is.”
Despite all the challenges, Pakistan’s real estate market is flourishing as a number of housing projects continue to grow aimed at wealthy (and often expatriate buyers). It is worth noting that due to the severe difference in time zones Pakistan is unlikely to develop as a significant destination for remote workers.
The sector’s full economic potential, however, can be fully harnessed with government’s intervention via viable policies to benefit the real estate investors. For American workers considering investment in Pakistan – patience may be key. – Forbes, Zenger News
