Energy cost inflation was already a concern before to the Russia-Ukraine crisis, but recent sanctions limiting fuel exports are escalating the issue and driving up petrol prices.

Although it might not appear like growing petrol prices and real estate are related, they are actually far more connected than you might believe.

Every sector is impacted by rising fuel prices, either directly or indirectly. One of them is the Pakistan real estate market. Consumer confidence will therefore be an issue for many housing providers. The buying and renting of properties may be impacted by rising petrol prices.

Here are some potential short- and long-term effects of the soaring cost of fuel on Pakistani real estate market.

Petrol Prices and Real Estate Business

People were shocked, as national averages for regular petrol and diesel surpassed records in the start of July. Pakistanis are curious as to how long the surge will stay and when petrol prices will start to decline. However, the petrol prices have now reduced a bit recently.

First and foremost, there is an increasing need for ‘live, work, play’ centers in different cities around the country, where people can walk to work and have access to all utilities and leisure activities just outside their door.

The mixed-use development business model is succeeding so well at major commercial nodes or hubs because this environment is also humming with activity far beyond the “conventional” 8 to 5 working hours.

Second, the increasing demand for homes along major thoroughfares for quick commutes by air, land, and train. This includes those who can easily travel for business as needed by living near airports.

Another third of people are choosing to live in rural areas rather than the hectic pace of the city where people can live more leisurely lives either in retirement or while still working.

Petrol Rates and Housing Market

The connection between petrol and the housing market may also be crucial for comprehending other aspects of the housing market, such as the differences in pricing between nearby and far-off properties, the performance of mortgages, the housing bubble of 2008, and the location of new housing supply.

For instance, in places farthest from the central business district, property values increased substantially less during the last two housing booms. When compared to the 2009–2015 housing boom, when real petrol prices fell, the 2019–2022 housing boom’s effect was much more pronounced.

Fuel costs may also help to explain why, during the second boom, the price rise gradient was flatter in locations where more adults use public transportation.

Real Estate & Gas Price Correlation

The supply and demand factors influence the housing market. Due to advantageous lending conditions like low interest rates, a lack of housing supply and high demand recently have caused home prices to reach record highs.

Average housing prices have climbed by 19 percent over the past year, while rental rates have increased by 12.6%.

Low- to middle-income earners are under a lot of pressure when housing costs are rising by double digits at a time when salaries are only growing by about 4.5 percent.

The growing issue becomes glaringly obvious when you factor in the rising cost of basic necessities like food and gasoline, which have climbed by 7.9 percent and 38 percent, respectively, in the last year.

People can no longer afford as much due to the skyrocketing cost of petrol and oil, which limits consumer spending.

Effects on Real Estate Market in Pakistan?

As a result of the ripple effects of the rise in petrol costs, customers frequently find themselves in a tight financial situation. The result is that as disposable income declines, the average person must make sacrifices and cut expenses.

Fuel prices have an impact on a wide range of consumer expenses since transportation costs are tied to so many different industries.

Demand in the rental market frequently reflects a variety of things, not only the state of the economy. Tenant needs are influenced by a variety of variables, including the development of new estates, regional growth and expansion, urbanization, and migration.

Do your homework

It is advisable to do your homework and speak with a specialized rental agent who can provide excellent market information so that your choices are informed by knowledge and competence rather than an emotional reaction to an average economic cycle.

As individuals struggle with rising fuel prices, demand for real estate in places where people have a long commute, like the suburbs, could decline. Thankfully, long journeys are less of a problem since that many people still have the option to work from home. It’s more likely that we will observe a direct link between high petrol prices and decreased housing demand.

In an effort to battle the inflation rise, which will ultimately lead to an increase in mortgage interest rates, the federal reserve has laid out a strategy to raise interest rates multiple times this year. In order to make the same monthly payment as they could with a loan with a lower interest rate, people must purchase properties for less money.

The real estate firm is greatly impacted by rising petrol prices in many different ways. It has an indirect impact on the several industries that collectively make up real estate. High fuel prices have an impact on building contractors as well as housing costs, sales, locations, and property values.

Housing Prices

People are moving to the suburbs in record numbers as a result of the pandemic. Prices are lower and there is more availability. Here is where high fuel prices start to hurt.

The cost of housing is increasing for consumers as fuel prices rise. The cost of their commute from the suburbs to the city is higher.

Housing Sales

Residents are becoming more aware of the growing expense of life. This undoubtedly has an impact on their choice to purchase a home. As energy prices climb, Pakistani homebuyers might be less keen on making significant purchases.

As fuel costs rise, both real and perceived purchasing power are declining. When petrol prices rise, people feel as though they have less money in their pockets. It initially makes buying a house an emotional procedure.

The already competitive low-inventory market will become even more so

There will be a lot more money in circulation due to low interest rates and the greater cost of goods, but this won’t always make things easier for buyers.

In fact, as continued supply chain issues make it more challenging to build new developments and increase the inventory of homes, the current low-inventory market is anticipated to become much more competitive in 2025.

There is no doubt that more individuals will be trying to buy homes with even lower availability because housing shortages are already a problem in many parts of the country.

Every Market Has Possibilities

This is both a difficult and a terrific time for agents to improve their skills and seize chances. It’s a competitive market, and the low inventory makes it so, but don’t let that stop you.

Since property values are growing, loan rates are anticipated to remain low (at least temporarily), and buyers and sellers are still ready to move, there is a high need for agents.

Final Thoughts

Rising interest rates are a concern for the real estate industry, which depends heavily on bank funding for both builders and customers, as well as for sales.

Any increase in the interest rate will increase the cost of doing business and harm business sentiment.

However, there has been a fundamental shift in purchasers’ attitudes and expectations about home ownership, and this will mostly withstand small changes in loan rates.