Real estate development in Pakistan has emerged as one of the most significant economic forces over the past two decades. From Karachi’s rapidly expanding skyline to Lahore’s ever-growing suburbs, real estate has fueled economic growth and provided much-needed jobs. However, this development has also brought with it a host of economic challenges that threaten the country’s long-term stability. The sector’s unchecked growth has led to economic distortions, speculative bubbles, and social inequality, while also benefiting allied industries and providing employment to millions. Real estate development in Pakistan has been a major contributor to economic activity, representing approximately 3% of the country’s GDP. The sector has seen robust growth, particularly in urban centers like Karachi, Lahore, and Islamabad, where property prices have skyrocketed. Between 2015 and 2024, property prices in these cities have increased by nearly 300%, according to estimates from the Pakistan Bureau of Statistics (PBS). This surge has been driven by a combination of rapid urbanization, speculative investments, and a perception of real estate as a safer investment compared to the volatile stock market. Moreover, the construction boom has had a ripple effect across the economy, stimulating growth in allied industries such as cement, steel, glass, and furniture manufacturing. The construction sector itself saw growth rates of up to 8% in 2023, providing employment to millions of laborers and contributing to economic momentum. The government’s construction package, introduced during the COVID-19 pandemic, further incentivized investment in real estate and construction, leading to increased demand for labor, materials, and machinery. This, in turn, has helped lift many from poverty and created new opportunities in related sectors. Despite the apparent benefits, the real estate boom has also led to significant economic distortions. One of the most pressing concerns is the misallocation of resources. The real estate sector has attracted a disproportionate share of investment, often at the expense of more productive sectors such as manufacturing, agriculture, and technology. As a result, capital that could have been used to drive innovation, increase exports, or improve productivity has instead been funneled into speculative property investments. The real sector’s focus on speculative investments, luxury developments, and urban sprawl has exacerbated economic inequality. This misallocation is evident in the shrinking share of agriculture in Pakistan’s GDP, which has declined from 21% in 2015 to under 18% in 2024. Farmland has been increasingly converted into housing schemes and commercial real estate projects, reducing agricultural output and threatening food security. The focus on luxury housing and gated communities has also diverted resources away from critical infrastructure and public services, such as education and healthcare, which are essential for long-term economic growth. The speculative nature of real estate investments has contributed to a bubble in property prices, making housing unaffordable for the majority of Pakistanis. According to the Pakistan Institute of Development Economics (PIDE), the average price of property in urban centers has increased by nearly 300% over the past decade, while income growth has lagged far behind. This disparity has exacerbated economic inequality, with the wealthy able to profit from rising property values while the middle and lower-income groups are increasingly priced out of the housing market. The rise in land prices has also led to the proliferation of informal settlements or “katchi abadis,” as low-income groups are pushed to the peripheries of cities where land is cheaper but access to basic services is limited. This growing inequality not only threatens social cohesion but also creates the potential for increased social unrest, as those left behind become more marginalized. The environmental consequences of unchecked real estate development are another significant concern. Rapid urbanization and the conversion of agricultural land into residential and commercial projects have led to deforestation, loss of biodiversity, and increased pollution. In cities like Lahore, where real estate development has been particularly intense, air quality has deteriorated to dangerous levels, earning the city a place among the most polluted in the world. The construction of high-rise buildings and luxury housing schemes often disregards environmental regulations, leading to issues such as water scarcity and increased energy consumption. The environmental degradation caused by real estate development not only affects the quality of life for city residents but also has long-term implications for sustainable development. As green spaces are replaced by concrete jungles, cities become more vulnerable to the effects of climate change, such as heatwaves and flooding. The lack of planning and foresight in urban development could lead to a situation where the short-term gains from real estate are outweighed by the long-term costs of environmental damage. Pakistan is not alone in grappling with the challenges posed by rapid real estate development. Similar issues have been observed in other developing economies, such as India, Brazil, and Nigeria, where real estate booms have led to economic inequality, environmental degradation, and speculative bubbles. In India, the government introduced the Real Estate (Regulation and Development) Act (RERA) in 2016 to increase transparency and protect consumers in the real estate market. This regulation has helped curb some of the excesses of the real estate sector, though challenges remain. In Brazil, the real estate boom of the early 2000s led to increased economic inequality and environmental damage, much like in Pakistan. The Brazilian government responded by implementing policies to promote affordable housing and sustainable development, such as the Minha Casa, Minha Vida (My House, My Life) program. These initiatives have helped address some of the negative impacts of real estate development, though the country still faces significant challenges in managing urban growth. China offers another cautionary tale. The country’s rapid urbanization and real estate boom have led to the creation of “ghost cities”-urban developments that remain largely uninhabited because property prices are too high for the average citizen. The Chinese government has taken steps to rein in the real estate sector, including tighter regulations on property purchases and increased scrutiny of developers. However, the country still faces the risk of a real estate bubble bursting, which could have far-reaching consequences for the global economy. To mitigate the negative impacts of real estate development, Pakistan needs to adopt a more balanced approach that promotes sustainable and inclusive growth. One key step is to introduce stronger regulations to curb speculative investment in real estate and ensure that property development aligns with broader economic and social goals. This could include measures such as imposing taxes on vacant properties, limiting the conversion of agricultural land for real estate development, and promoting affordable housing initiatives. The government should also encourage investment in more productive sectors, such as manufacturing, agriculture, and technology, to diversify the economy and reduce reliance on real estate. This could be achieved through incentives such as tax breaks and subsidies for industries that contribute to economic growth and job creation. Public-private partnerships could play a crucial role in this regard, with the private sector working alongside the government to develop infrastructure and services that benefit a broader segment of the population. Environmental protection must be a priority in any future real estate development. The government should enforce stricter zoning laws and environmental regulations to ensure that urban growth is sustainable and does not come at the expense of natural resources. The adoption of green building practices, water conservation measures, and sustainable urban planning can help mitigate the negative effects of rapid real estate expansion. Moreover, public awareness campaigns should be launched to educate citizens about the risks associated with speculative investment in real estate and the importance of sustainable development. Efforts should also be made to involve communities in the planning and development process to ensure that their needs and concerns are addressed. This could help build a more inclusive and equitable real estate market that benefits all Pakistanis, not just a select few. Real estate development in Pakistan has been a significant driver of economic growth, but it has also created deep structural issues that need to be addressed. The sector’s focus on speculative investments, luxury developments, and urban sprawl has exacerbated economic inequality, diverted resources from more productive sectors, and led to environmental degradation. To ensure that real estate growth contributes to the well-being of all Pakistanis, policymakers must find a way to regulate the sector more effectively, promote sustainable development, and encourage investment in other areas of the economy. By learning from the experiences of other developing economies, Pakistan can chart a path toward a more balanced and resilient future, where real estate development serves as a cornerstone of sustainable growth rather than a ticking time bomb for the economy. The writer is a financial expert and can be reached at jawadsaleem.1982@gmail.com. He tweets @JawadSaleem1982.