With Pakistan already experiencing record-breaking hyperinflation, which has reduced the purchasing power of property, real estate investors have begun to look for foreign capital in order to expand and develop their market.
Apart from immediately hurting the currency value, the implications of devaluation in an unstable economy extend to developing a negative investment reputation, particularly in a sector like real estate.
When a real estate investor considers purchasing a property, two aspects are frequently considered:
- Return on investment (ROI) from property value appreciation upon sale
- Rental income earned during ownership.
When the exchange rate of the local currency vs the dollar declines, the ROI on property values falls dramatically. To put it another way, an investor who receives a specific percentage as a return on investment on the sale of a property must remove the drop in the value of the dollar (plus inflation) to calculate the actual realized gain or loss.
How The Dollar Upsurge Can Influence Real Estate of Pakistan
Despite the fact that the real estate market is improving in terms of PKR, it still has a long way to go to reclaim its 2016 peak in terms of USD. Those who have consistently invested in dollars in Pakistan for the past ten years have profited regardless of the circumstances.
Rental revenue is the most common method of generating money in real estate. Plots are also the most cost-effective solutions for generating a return on investment.
Investors who purchased plots in 2023 or 2024 are now seeing positive returns on their investments. Profit margins of 30-40% are being reported. However, investors who purchased plots in the years 2019-20 or before are still far from breaking even.
However, regardless of the time period, investors who invested in rental properties throughout these eras are already reaping the benefits of rental income and asset growth.
Consequences for The Real Estate Market
People jump out of their skin when the Rupee continues to fall, especially when inflation is already high. Buying a new residence appears completely out of proportion as it becomes increasingly difficult for the average person to make ends meet.
As a result, it indirectly affects the real estate market, but only in a minor amount, because investors are often well-off individuals who invest their savings rather than their daily earnings.
The currency depreciation is primarily due to the country’s political circumstances, as when foreign reserves are low, the impact is fatal. The depreciation gives the country a terrible image in the eyes of international investors, who are equally crucial to the market’s survival.
If the investor is a Pakistani who has settled abroad, he will undoubtedly compare both to the US Dollar.
For example, if he is currently receiving $1000 per month in rent, his income will be reduced to $900 due to the depreciation of the rupee. It is plain sense that the investor will calculate it as a $100 loss per month, despite the fact that the property is valuable to him.
When the dollar strengthens; however, rental management running expenses fall, and anything you pay for homeowner association fees, utilities, and taxes will cost less in dollars. However, as it deteriorates, you begin to lose pay.
The Impact on The Investments of Overseas Pakistani
The buyer’s attitude shifting due to devaluation is one of the most recent growing issues expressed by the recently. People with money appear to be more interested in investing in assets such as gold or foreign exchange reserves in order to increase their investment’s liquidity.
Dollar depreciation makes it a more appealing asset to invest in, as it not only yields larger profits quickly but also provides greater security than investing in slow-moving assets such as real estate, where the money trail can be difficult to control.
If you have consistently invested cash in Pakistan over the last ten years, you will have profited regardless of what happens. Not nearly as much as you expected or were led to believe.
This is why rental-generating real estate is so important for accumulating wealth. If you want to make genuine money in real estate, plots are not the way to go. It is the compounding impact of the rentals that makes you wealthy, not a piece of property that will remain undeveloped for all eternity.
Let’s Talk About Some Stats!
Based on the above discussion, we can conclude that earnings in USD are dependent on the cycle being studied. This research also confirms that holding your property for a longer period of time is not a profitable decision. Instead, smaller cycles with a consistent USD-PKR spread are more advantageous. During this time, properties frequently yield a nice profit.
Furthermore, it is apparent that the USD-PKR exchange rate does not have a direct impact on property values. For example, between 2018 and 2024, real estate prices fell while the US dollar rose from 25% to 35% against the Pakistani rupee.
Solutions to Follow Over National Level
However, in order to improve the turnover, Pakistan’s government and central bank would have to play a key role in regulating their policies and bringing stability to the Pakistani rupee. They should devise and implement rigorous strategies, as well as maintain an active monitoring strategy, in order to keep inflation and devaluation in Pakistan to a minimum.
The harm has been significant since the beginning of the year, but let’s hope things return to normal after the elections and extraneous circumstances no longer have an impact.
Where to Invest in Pakistan for Better ROI
This isn’t the first time the rupee has fallen versus the dollar. However, persistent deterioration can be disastrous for any industry, with the layperson bearing the brunt of the consequences.
We expect that the new measures enacted by the new government would encourage investment rather than discourage it. With the introduction of foreign purchasers into the real estate market, we hope to witness a boom in the market.
For people looking for better return on investment for the real estate sector, there is a golden opportunity – Kuwait Mall Bahria Town Lahore. Get in touch with the professional realtors at Globe Estate and Builders for more information.
