Source: Dawn —
Real estate plays the role of a bogeyman in Pakistan’s economy because of its large-scale monetary ramifications, various manipulations, overpricing and artificial growth.
Prevailing speculation, the lack of transparency and regulation in the sector has resulted in the increase of significant asset-price bubbles and their volatile nature. Lack of reliable data has also made it difficult for investors in terms of making informed decisions.
The real estate of Pakistan, like the casino sector, has enhanced the gap between intrinsic value and market value. It has resulted in the creation of pricing bubbles which have been visible for some time.
The rising prices, consequently, have created an affordability gap because the cost of housing has outpaced the wealth growth of the middle class. The information cascade is creating a pricing premium which further boosts price bubbles and artificial growth in the real estate sector. As a result, the widening gap between the purchasing power of the middle class and house prices has been increasing drastically.
Data from State Bank shows that Pakistan received $2.45 billion and $2.61bn per month in remittances in 2021 and 2022, respectively. It also shows that 45-50 per cent of this amount had been invested in the real estate market.
Expatriates use information cascading to make decisions about real estate investments in Pakistan. In economic literature, information cascades can be defined as those decisions made by people based on the actions and decisions of the people around them. The actions of others act as guidance for such people who want to avoid the uncertainty of personal decisions.
