CPEC and its Influence on Real Estate Sector in Pakistan

It is time to put things in perspective and see what lays ahead of us in years to come. When you invest in real estate it is all about predicting the future and how things will shape up for Pakistan. CPEC  and its influence on Real Estate Sector is a game changer for not only Pakistan’s economy but also the property sector.

CPEC is a 3,218 kilometer long route, to be built over next several years, consisting of Gwadar deep sea port, highways, railways and pipelines. CPEC is part of the Chinese one belt one road initiative which links more than 70 countries with China.  This communications network will connect Pakistan’s Gawadr port with China’s  Kashgar in western province Xinjiang. CPEC will open doors to immense economic opportunities not only to Pakistan but will physically connect China to its markets in Asia, Europe and beyond. Almost 80% of the China’s oil is currently transported from Strait of Malacca to Shanghai, (distance is almost 16,000 km and takes 2-3 months), with Gwadar becoming operational, the distance would reduce to less than 5,000 km.

The actual estimated cost of the project is expected to be US$75 billion, out of which US$45 billion plus will ensure that the corridor becomes operational by 2020. The remaining investment will be spent on energy generation and infrastructure development.

Two major factors in regards to CPEC which are going to effect real estate sector are :

Number 1: Overall Economic Growth

The impact of CPEC on Pakistan’s economy is going to be enormous, from creating millions of Jobs to setting up of new industry it is going to change the complete outlook of our country. Pakistan’s predicted annual growth rate for the next 10 years is 5.07 percent, according to the Center for International Development at Harvard University (CID) research published recently. This growth percentage is second highest in the Asian region right after India.

A bigger economy in turn means a lot more pressure on the real estate sector of Pakistan. Our housing sector is already running short and with more people having the power to purchase property, the real estate sector will flourish.

We will definitely start seeing the effects of CPEC after year 2020 and the charge will be led by residential and commercial properties followed by industrial and agricultural land.

Number 2 : Chinese Immigration

At some point of time Pakistan will have to allow Chinese investors to buy and sell property in Pakistan, it is not about “IF” it is just about “WHEN”.

We have already seen how Chinese influx has effected the rental returns in major cities and in time this influx is going to grow. Even if we consider that Chinese investors will not be allowed to buy properties directly, the impact will still be huge specially in major cities such as Lahore, Karachi, Islamabad and most importantly in Gawadar.

The very first market Chinese businesses need to capture after CPEC is our local market and the first targets will be our metropolitan cities.  Lahore being in the center of Punjab and the second biggest city offers a lucrative investment opportunity. In short where they will invest they will need property to launch an industry and to reside.

Higher rental returns will mean a higher property price and local investors are already preparing themselves for the future. One of the major reasons we are seeing a spike in apartment buildings all over Lahore is part of this chain.

It is this very positivism that is keeping the interest of the people in real estate in Pakistan. In my opinion most of the expats have been subject to open international markets and they understand the effect of such dynamics much better than the local market.

This is no fairy tale Australia, Canada and other western countries have already seen impacts on real estate prices due to Chinese investments. In the year ending June 30 2017, authorities approved $29.2bn in investment proposals by Chinese investors in Australia and between year 2013 to 2017 Australia has seen an increase of 47% in property prices riding the wave over Chinese investment.

We can argue that Pakistan may not be as attractive for Chinese investors as Australia or Canada but even if Pakistan receives half of these numbers it will bring a huge impact on the prices in real estate sector.

Another study found out that in 2011, the combined wealth of all of China’s millionaires was nearly equal to the value of Australia’s total housing stock. Today, however, China’s wealthy are worth twice as much as the housing stock.

We should also understand the fact that Pakistan’s real estate market is relatively cheaper compared to international markets and therefore a few billion dollars investment into Pakistan’s real estate by rich Chinese will have a huge impact.

Conclusion

It is very clear that CPEC will have a huge role to grow Pakistan’s economy and will eventually effect our real estate sector as our GDP increases and development of industry and Chinese immigration.

We will start seeing direct effects of real estate in 3 to 5 years at the max and in 7 to 10 years we can expect a major boom in the property prices.

Previous trends in other countries suggest that residential and commercial properties will be the main focus of any such investment by Chinese wealthy.

Gwadar, Lahore and Karachi will remain as the epicenter of this economic and property development.

We can safely assume that while Govt will impose restrictions on foreign investment in other cities but comparatively Gwadar will be a target of  fewer restrictions when it comes to foreign investment, so the biggest impact we will observe in the decades to come is in Gwadar where property may not grow just in percentages but will multiply a few dozen times.

Captain (Retd) Shahnawaz Yaqub Bhatti

CEO Imlaak

Mob : +92 333 1616160 (Whatsapp)