Pakistan’s obsession with real estate is a strange paradox: almost every single household has lost money in some sort of fraud, and yet, it continues to be the preferred avenue of investment for the majority. From middle-class professionals to business tycoons, pretty much everyone has parked their funds in plots or property in general.
According to the national accounts, real estate activities have a gross domestic product of Rs2.32 trillion in constant prices, or roughly 5.8 per cent of the entire economy. However, these are just the official statistics and do not capture the activity taking place informally, where, unfortunately, the lack of data makes assessment quite difficult.
One could try to estimate the extent of it, but probably nothing sums up the state of things better than the frequent real estate amnesties successive governments introduce to whiten parked money.
While talks of the latest amnesty fell apart amid concerns regarding the International Monetary Fund, the 2021 edition saw more than 2,100 projects avail of the scheme. Back in 2018, when the incentives were not limited to a specific sector, 14.6pc of all the assets happened to be in real estate.
Market-driven solutions that align incentives with improving service delivery can lead the way to formalising the real estate sector
As a result, the problems of informality dominate most conversations regarding real estate. Unfortunately, things aren’t particularly great even in the formal area. Overpromising, delayed handovers, and subpar projects are routine complaints among customers who typically have little recourse to get their contractual rights. The choice is between years of fatigue in the lower courts or just making peace with what they have gotten. Most people choose the latter since the bare minimum is the standard practice.
This is because real estate doesn’t have a dedicated regulator despite it being an investment avenue, and the consequences go far beyond. The absence of a regulator has created a vacuum where developers face few consequences for delivering subpar products and even fewer incentives to maintain properties post-completion.
This gap has normalised a build-and-forget model, where long-term property management and quality maintenance are afterthoughts rather than core considerations.
Even in the formal sector, where the likelihood of fraud is low due to the developers’ brand name, we see systematic underinvestment in quality infrastructure. There are multiple reasons behind this. First, the sector lacks institutional financing. As of January, the real estate activities had outstanding credit of just Rs36.3 billion, translating into less than 1pc of the sector’s nominal GDP. (This is different from loans to businesses for construction purposes or individuals for mortgages).
Second, professional property management, quite standard in developed markets, remains a nascent concept in Pakistan. Not exactly surprising when price appreciation is driven largely by speculation rather than rental yields, leaving developers little incentive to invest in features that improve the tenant’s experience or reduce operational costs.
After all, they generate capital by selling real estate units like offices or apartments, so the focus, naturally, is on maximising the square footage, with amenities such as parking and green spaces becoming a casualty.
Unlike residential units, office real estate development is primarily funded by high-net-worth individuals seeking rental income or asset appreciation rather than end users of the offices themselves. Therefore, developers prioritise features that are easiest to sell rather than what’s most efficient and sustainable.
As a result, the end product is usually the barest of minimums instead of following the standards of any modern high-rise, such as properly functioning common areas, reliable elevators, effective firefighting systems, or sophisticated building management technology.
Moreover, once these buildings are sold and handed over to multiple individual owners and typically an ill-equipped management team, the collective interest and accountability for maintaining high standards become severely diluted.
This fragmentation of responsibility creates a situation where meaningful improvements to building management become nearly impossible to implement. Adding to this problem, developers generally lose interest in their projects after handover, completing their profit cycle and moving on to new ventures.
Eventually, the cost of this neglect is borne by the tenants, ie small businesses that have to pay out of pocket for regular repairs and upgrades. They demand functional, well-maintained workspaces without the headaches of ownership or heavy capital expenditures. While the legacy players may have clung on to the status quo, these pain points have been addressed by the co-working industry. In less than a decade, it has reached a meaningful scale, with Colabs, Daftarkhwan, Kickstart and The Hive having around 40 properties combined.
With bank financing practically nonexistent, each co-working space had to take a different approach to its source of funding — from venture capital and private equity to corporate and high-net-worth individuals. As such, there’s no right formula except for the fact that all these companies have focused on thoughtful design and professional property management.
The second point deserves greater emphasis since property management as a service has now become a major revenue stream in itself. By turning dead commercial spaces like warehouses into co-working offices, this model has managed to do two things simultaneously: for property owners, it provides access to professional management expertise without the need to build these capabilities in-house, and for tenants, it ensures consistent service quality and well-maintained spaces.
Most importantly, it creates a framework for bringing real estate operations into the formal economy through market incentives rather than regulatory pressure.
The success of such models suggests a potential path forward for Pakistan’s real estate sector. Rather than waiting for comprehensive regulatory reform or massive institutional investment, the sector might benefit from expanding these proven management approaches to broader property categories.
As these models demonstrate their value through improved yields and better tenant experiences, they create natural pressure for better regulation and attract more institutional capital.
The challenge now lies in scaling these solutions beyond niche segments like co-working spaces. This will require support from policymakers in creating frameworks that encourage professional property management and from financial institutions in providing capital to proven models. But the core lesson is clear: formalisation of real estate doesn’t have to be a top-down process. Market-driven solutions that align incentives while improving service delivery can lead the way.
Mutaher Khan is the co-founder of Data Darbar, a market intelligence startup, while Saad Riaz is the co-founder of Kickstart, a co-working space operator.
Published in Dawn, The Business and Finance Weekly, March 3rd, 2025
