Introduction
Real Estate is a rapidly evolving sector of Pakistan’s economy and is expected to grow exponentially in 2022. Pakistan is experiencing a transformation through online real estate marketplaces, digital mapping, the upgradation of land records, and the introduction of international best practices in client-agent relationships. With the advent of blockchain and cryptocurrency, investors are keen to invest in digital real estate along with traditional residential and commercial real estate projects. Furthermore, Real Estate Investment Trusts (REITs) are also emerging as lucrative investment options for the Pakistani masses. Other major real estate trends of 2022 include the Metaverse, Tourism and Hospitality, Asset Tokenization, sustainable development, vertical housing infrastructure, and regularisation of the Real Estate Sector. These trends will present investors with myriads of opportunities to invest in affordable real estate through digital platforms and low-income housing units while ensuring more transparency and regularisation.
This Blog by the Iqbal Institute of Policy Studies will discuss the top real estate trends of 2022 in detail.
Metaverse
The Metaverse is predicted to be the biggest trend of 2022, with digital real estate gaining traction as a lucrative investment option. It is a great window of opportunity for people looking to diversify their property portfolio. Metaverse uses blockchain technology instead of the traditional banking system. With Web 3.0 being the era of the open crypto metaverse, the new phase of the digital revolution will be where users own the stakes of their assets in the particular digital platform. There are multiple benefits of investing in the metaverse. Firstly, metaverse allows the investors to earn income with the appreciation of digital land. Secondly, metaverse allows the investors to rent out properties. Thirdly, the input costs are relatively lower than real estate in the actual world.
Tourism and Hospitality
The hospitality industry has evolved into a great investment opportunity due to its global tourism potential. This is especially significant to the crippling economy of Pakistan because tourism has emerged as one of the biggest economic activities across the world. Numerous countries, including Malaysia, Turkey, Thailand, and UAE, have improved their economies through tourism. Pakistan can benefit immensely from its vast tourism potential by improving the standards and facilities of the hotel industry. Moreover, due to COVID restrictions, people could not travel worldwide, which generated an opportunity for local tourism to flourish. As a result, there was a huge influx of local tourists in the main tourist destinations of Pakistan, which resulted in a shortage of lodging and accommodation facilities. The year 2022 gives investors a great opportunity to invest in franchising the hotels with international brands willing to set up their franchises in Pakistan, like Hilton and Marriott. The real challenge is sustainable development, construction and operation of the hotels, alignment of the facilities with International Standards and, improving the infrastructure through the development of roads.
Real Estate Investment Trusts (REITs)
REIT Schemes are a great and affordable way to invest in real estate and diversify one’s property portfolio. REITs are perhaps the biggest real estate trend in Pakistan in the upcoming years. Liquid investments and high dividends in the property market, along with high growth and appreciation in the long term, make REITs one of the most practical ways of investing in real estate in Pakistan. There are multiple benefits of investing in REIT schemes since they are total-return investments, providing high dividends and long-term capital appreciation. A REIT scheme investment is different from investing in a traditional real estate project because REITs must be listed on the stock exchange. This allows the investors to invest directly with the thriving economy and maximise the value of their investments.
Most importantly, most of the REIT Schemes are required to pay 90% of the taxable income to unit-holders and investors, making the REIT dividends much higher than an average investment. Moreover, the number of investors per REIT scheme is limited by law to be fifty (50), which ensures that larger chunks of dividends are distributed amongst investors. With the growing infrastructure needs, the REIT model will gain prominence in the present decade. The updated REIT Laws of Pakistan have relaxed the requirements of registration of REITs management companies, primarily to boost the investors’ confidence to invest in REIT Schemes and diversify their real estate portfolio
Asset Tokenisation
The widespread acceptance of blockchain technologies has opened several avenues for digital real estate. For instance, asset tokenisation is a process that allows an ‘issuer’ to create digital tokens on blockchain or distributed ledger, which can be traded as per the market value. Simply put, asset tokenisation converts real assets into digital assets by converting ownership rights into digital tokens. Real estate is moving towards increased liquidity of assets worldwide. Asset tokenisation offers increased liquidity with reduced costs and faster settlements. It also removes the function of a ‘middleman’. Another benefit of tokenised assets is their high divisibility, which means investors can invest in small percentages with reduced barriers to entry. For example, an investor can only buy a 10% share of a tokenised digital asset or real estate property. Thus, asset tokenisation will continue to gain traction as it presents multiple investment opportunities for investors across various industries, including real estate, commodities, private equity shares, and physical goods.
Vertical Housing Infrastructure Development
According to UNDP, Pakistan faces an acute housing shortage of more than 10 million units. The rate of urban population has grown in extreme contrast to the availability of land for residential purposes and the development of housing units. This housing shortfall indicates that Pakistan will observe an upward surge in the development and construction of affordable vertical housing units. The Government has also indicated investing in such housing units to decrease the cost of living, increase the number of green spaces, and achieve a sustainable urban model. Moreover, climate change continues to remodel the standard construction and development practices. The year 2022 will observe green infrastructure and eco-friendly developments while giving investors a great opportunity to invest in real estate assets with limited investment capital. The high-rise buildings, micro-apartments, and mixed-use apartments are among the top housing trends for 2022.
Regularisation of the Real Estate Sector
Real estate has been declared a high-risk sector for tax evasion as many people have used malpractices to legitimise black money due to the lack of a proper regulatory framework. The Government of Pakistan is taking active measures to develop a proper framework for regularising the real estate sector to ensure transparency in real estate development. By the end of January 2022, the Government has mandated the registration of Real Estate Agents with the Federal Board of Revenue (FBR). The registration of real estate agents has several benefits, including monitoring financial transactions, regularisation, imposition of specific conditions and rules for business, reducing the gap for corruption and making a competitive threshold for registered agents. Moreover, registered agents will have to operate under certain by-laws to counter the integration strategies of money launderers and to report suspicious financial activities. Furthermore, the Government has also initiated active measures to crackdown on illegal housing societies in Pakistan. The increased regularisation will ensure transparency and secure investors looking forward to investing in real estate.
Conclusion
To sum it up, the top Real Estate Trends of 2022 are dominated by Digital Real Estate, REIT schemes, asset tokenisation, and vertical housing infrastructure development. The residential and commercial real estate costs will continue to rise in 2022. However, multiple low-investment opportunities will also allow investors to diversify their property portfolios. Moreover, environmental awareness and eco-friendly architecture and development are also rising, giving room for investment in vertical housing schemes.
Digital real estate will also disrupt the sector. With 2022 being considered the year of the Metaverse, digital real estate will become a lucrative investment prospect. It is a great window of opportunity for people looking to diversify their property portfolios.
