Real estate business: a slow-acting poison
By Ahmed Nofel Siddiqui
OPINION | Jan 25, 2025
Pakistani investors must try to curb the habit of investing in the sector
Real estate barons like Bahria Town owner Malik Riaz (pictured above) have done more bad than good for the nation
AT the apex of each society sits an elite class. As a rule of thumb, the more productive and entrepreneurial the elite class is, the more robust and dynamic the economy becomes. If members of the elite are productive, everyone benefits.
In successful countries, members of the elite sit at the head of vast, innovative, and productive empires. For example, in India, rich people like Gautam Adani and Mukesh Ambani continue to innovate in the fields of telecom, green energy, and more. Their job-creating enterprises help to bring about the flowering of Indian society and economy. The same is true of American billionaires Jeff Bezos and Elon Musk; the two are world leaders in the fields of space travel, and both sit at the head of massive corporate and industrial empires that offer jobs to thousands.
In stark contrast, Pakistan’s elite makes money from crony capitalism, corruption, housing societies, and other unproductive pursuits.
The real estate scam
Perhaps the worst of Pakistan’s productivity woes is represented by the real estate industry. The real estate industry is virtually untaxed, and in most cases, people use their power and position in society to build lots of housing societies without spending a dime of their own.
The scam begins by first forcibly occupying government and privately-owned land; money is then acquired from investors to develop the land. Plots are ultimately sold to make millions without spending a single dime. A combination of corruption, political connections, and influence allows these elites to escape prosecution for their crimes.
Take, for example, real estate mogul Malik Riaz, who is the owner of Bahria Town and who holds some of the most desirable properties in Lahore, Islamabad, and Karachi. The land on which he develops societies is either forcibly taken from indigenous peoples (as is the case with Bahria Town Karachi) or it’s acquired through political connections at dirt cheap rates; he then develops the land and sells the land to buyers at exorbitant prices.
These shady business practices have made Mr. Riaz billions, as his current net worth is estimated to be over $1.5 billion. At the same time, however, being untaxed, his massive real estate empire does not benefit the economy as much as it should; rather, the government allocates resources towards Mr. Riaz’s real estate ventures, resources that can be better utilised in other areas.
The wider problem
The real estate problem doesn’t end with the elite; middle-class Pakistanis would rather invest in a plot of land than in the stock exchange or in a job-making enterprise. Members of the middle class would rather buy a plot of land at a cheap rate and sell it when its price rises. This is due to the fact that Pakistan has no capital gains tax on real estate.
The elite that loves to build housing societies and the middle class that likes to invest in buying plots of land give Pakistan one of the lowest tax-to-GDP ratios and one of the lowest saving rates in the world, with the two figures sitting at a meagre 10 percent and 13 percent, respectively. This has been killing Pakistan’s economy slowly.
Pakistan’s real estate addiction has caused mass unemployment, as there is a severe lack of job-making enterprises in the country, resulting in an acute shortage of jobs for skilled and educated people alike. This can be proven by looking at the statistics. The International Monetary Fund reported that in 2024, Pakistan had an 8 percent unemployment rate, which is alarmingly high for a country of 240 million or more people. It is no wonder, then, that young, educated Pakistanis are leaving the country in droves. In the first half of 2024 alone, over 800,000 Pakistanis left the country in search of job opportunities and a better life abroad. Pakistan is suffering a massive brain drain as we speak.
The taxation problem
The finance minister prefers taking loans over raising property and agricultural taxes to meet budget targets
The real estate industry is severely undertaxed, which incentivizes the elite to invest in urban real estate as opposed to more productive, innovative, and export-based industries, which would create job opportunities for the middle class. To give an example of poor tax collection, the entire province of Punjab, which has a population of over 100 million, collects less urban property tax than the city of Chennai in India, which has a population of only 12 million.
The broken tax system and poor export numbers, coupled with a fuel and electricity crisis, have caused Pakistan’s economy to crash 23 times, each time requiring a bailout from the IMF.
The future
The new budget for 2024–25, unveiled by Finance Minister Muhammad Aurangzeb, has indeed increased taxes on property transactions, but not in a meaningful enough manner or to the extent where Pakistan’s real estate industry could benefit the economy adequately.
However, there is no hope of meaningful taxation in the real estate sector anytime in the future, as the Pakistan National Assembly is full of landlords and real estate developers, people who have vested interests in the real estate economy and who benefit from the dismal taxation on land. Some parliamentarians run for office solely to protect their interests, and it is for these reasons that real estate in Pakistan will not be meaningfully taxed anytime soon.
Even if taxes on the real estate sector are increased, the fact remains that, at its core, the sector will remain an unproductive enterprise. The real estate industry doesn’t create significant numbers of jobs for the middle class, and it occupies land that could be used more meaningfully by other industries.
For the foreseeable future, the real estate industry will remain a burden on the economy as the moneyed elite uses resources to develop an unproductive sector to fill their own coffers, while the same resources could benefit industries like telecom, energy, textiles, and IT. Investment in these industries can help Pakistan’s economy become more productive, ending Pakistan’s addiction to loans. The development of these industries would create jobs for the middle class. Therefore, ending the elite’s addiction to real estate and diverting their funds to truly productive industries would help ease Pakistan’s economic crisis.
The writer is a student and can be reached at ahmednofel443@gmail.com