The macroeconomic backdrop has turned sharply favorable in 2025. Inflation has plunged (to ~1.5% in Feb 2025) and the SBP has aggressively cut policy rates (from 22% in mid-2023 to 11% by May 2025). This easing—unmatched among EMs—translates into cheaper mortgages and brighter growth prospects. At the same time, successive budgets have slashed real estate taxes: FY2024‑25 cut stamp duties and withholding taxes on sales (e.g. WHT 2%→1% for 3–10yr holdings, 0% if held >10yr, 50% stamp-duty cut on affordable homes), and FY2025‑26 abolished the 7% excise duty on all property transfers, sharply reduced WHT slabs (e.g. from 4%→2.5% on smaller deals), and cut Islamabad’s stamp duty from 4% to 1%. New housing incentives (mortgage tax credits for ≤10 marlas/2,000 ft² units) also sweeten the deal. These policy moves (see infographic below) are explicitly designed to spur both commercial and residential investment.
2024‑25 Budget tax cuts for real estate: WHT lowered on long-held assets, stamp duty cuts on affordable homes, etc. These were followed in 2025‑26 by abolishing FED on transfers, cutting WHT rates, and slashing Islamabad stamp duty.
SBP Interest Rate Cuts (2023–2025)
- June 2023: SBP policy rate was hiked to a record 22% (to tame inflation) and held there through year-end.
- 2024: With inflation cooling, the SBP cut rates 900 bps in 2024 (150 bps in June, 100 in July, 200 in Sept, 250 in Nov, 200 in Dec), bringing the rate to 13% by Dec 2024.
- 2025: Easing continued: a 100 bps cut in Jan (to 12%) and another in May (to 11%). The SBP paused at 11% in June as inflation risks were largely contained.
Lower borrowing costs mean mortgages and commercial loans are cheaper. As One Homes notes, “as inflation falls, investors gain confidence in long-term assets like real estate. Lower inflation often leads to lower borrowing costs”. In short, today’s ~11% real rates (versus 22% a year ago) make financing property much easier.
Tax Reforms & Incentives (2024 & 2025)
- FY2024‑25 (Budget Jun 2024): Major relief for buyers and developers:
- Stamp Duty: 50% reduction on transfers of “affordable” homes (price ≤PKR2.5m).
- Property Tax: Full exemption on homes ≤PKR2.5m; 50% cut on PKR2.5–5m units.
- Withholding Tax: Cut from 2% to 1% on resale of properties held >3 years, and eliminated completely if held >10 years.
- Developer Credits: Tax credit up to 15% of project cost for developers building affordable housing (plus extra for green building practices).
- FY2025‑26 (Budget Jun 2025): Even bolder reforms for investors:
- FED Abolished: The 7% federal excise duty on transfers of plots, residential or commercial, was eliminated.
- Withholding Tax Slashed: Residential purchase WHT rates were cut (e.g. from 4%→2.5% on the lowest slab, 3.5%→2% mid-slab, 3%→1.5% top slab).
- Stamp Duty: Islamabad’s stamp duty on property buys was reduced from 4% to 1%.
- Housing Credits: Tax credits introduced for home loans on houses ≤10 marlas or flats ≤2,000 sq ft.
These measures directly boost returns. For example, slashed WHT/stamp duties immediately cut transaction costs, while removed FED and new home loan credits make project financing and mortgage uptake more attractive. Together, the 2024 and 2025 budgets tilt the scales toward property investment in Pakistan.
Price Trends: Islamabad Market
- House Price Index: Zameen data shows stable to slightly easing house prices in Islamabad. In May 2025 the average house cost ~PKR32.5 crore, down ~4% from a year earlier (PKR33.9cr in Apr 2024). Prices are still up roughly 25% from two years ago (Dec 2022: ~PKR26.0cr).
- Commercial Land: By contrast, average commercial plot values have ticked up. In Apr 2025 the mean Islamabad plot price was ~PKR28.85cr, about 2% above year-ago levels.
- Apartment Supply: Savills reports Islamabad had ~1,600 high-end (Grade A/B) apartments in 2024 (80%+ occupied) with another ~800 Grade-A units coming soon. Grade-A apartment prices ranged ~PKR35,000–50,000/sqft, and Grade B ~PKR25,000–35,000. This indicates strong demand for high-end units.
In sum, Islamabad property values have held up despite earlier macro stress. Prime segments remain in demand, especially as financing costs fall. Current price levels and the improved economic outlook suggest room for growth: as Savills notes, “we are confident that as the economy stabilizes, the market will regain momentum in the coming years”.
Demand: Residential vs Commercial
- Residential: Demand was subdued in 2024 (speculative investors dominated), but the qualitative appetite is shifting toward end-users. Lower rates and tax breaks on affordable homes should stimulate first-time buyers. Demand is strong for centrally located apartments and gated communities as urbanization continues.
- Commercial: Islamabad’s office/retail market is heating up. Major businesses still seek premium office space; Savills & industry reports say occupancy in Grade-A offices is high. Retail is expanding too – new malls and shopping centers (e.g. a new high-end mall by Union Developers) are under construction. Land and commercial plots are scarce, which helps sustain plot prices (as Zameen’s +2% index shows).
Broadly, commercial real estate (offices, retail, mixed-use) is seeing healthy demand and rental yields in Islamabad, while residential demand is poised to rebound given the new incentives. With financing easier, more locals and overseas Pakistanis can now afford to buy, which should boost transactions in both segments.
Infrastructure & Development Projects
A surge in key projects is further sweetening the outlook for Islamabad:
- Government Urban Plans: The CDA is “fast-tracking new apartment complexes and commercial zones” under an Urban Regeneration Plan. It has vowed to replace illegal low-rise plots with modern developments (better utilities, etc.), especially in inner sectors, to address the capital’s housing shortage. The Special Investment Council (SIFC) is also studying schemes to redevelop old government housing into high-rise towers—one study showed converting G‑6/1’s 86 acres of bungalows into 6 towers could free 77 acres (worth ~Rs52bn) and boost GDP. These policy initiatives aim to unlock valuable land for new projects.
- Private Mega-Projects: Large master-planned communities promise more inventory. Capital Smart City Islamabad (approved ~7,376 kanal with ~160,000 total kanal planned) is a high-tech suburban development near the new airport. Bahria Town Islamabad and other gated projects (DHA etc.) continue expanding. These projects, with modern amenities and financing plans, attract middle/high-income buyers.
- Connectivity & Amenities: Improved connectivity (new Islamabad International Airport, expansion of Ring Roads and motorways) and upgrades to utilities/infrastructure (water, sewerage, transit) are enhancing livability. For example, CDA is investing in water supply and drainage improvements to support new growth.
Together, these developments enlarge and upgrade Islamabad’s real estate market, making investment properties more attractive. Urban densification (apartments/high-rises) in core areas and large peripheral housing schemes ensure both rental and capital-growth opportunities.
Outlook & Numbers
- Financial Indicators: Lower rates and tame inflation (forecast to average ~5–7% in 2025) mean real estate financing is cheaper and more predictable. The rupee has stabilized, and an IMF-supported recovery is underway. Analysts expect GDP growth ~3–4% in 2025–26. In this environment, Pakistan’s real estate sector is broadly expected to grow: industry sources cite ~25% annual growth pre-crisis (though that was an earlier period), and renewed activity seems likely now.
- Inflows: Inflows from overseas Pakistanis and Gulf investors are rising. Foreign investment in the CPEC/energy projects jumped 189% YoY in mid-2024, and some of this seeks real estate exposure. Islamabad, as the secure political and business center, stands to capture a share.
- Key Figures:
- Interest Rate (Policy): 22% in mid-2023 → 13% by Dec 2024 → 11% by mid-2025.
- Inflation: ~40% in mid-2023 → ~2.4% Jan 2025 → 1.5% Feb 2025.
- House Price Index: ~PKR32.5cr (Apr 2025).
- Commercial Plot Index: ~PKR28.85cr (Apr 2025).
- Apartment Prices (Islamabad 2024): PKR35k–50k/sqft for Grade A.
- Stock of New Units (2024): 1,600 high-end apartments existing + ~800 coming.
Why 2025 is “Go-Time”: All evidence points to 2025 as an inflection year. After years of uncertainty, policy is dovish: the SBP’s rapid easing cycle and record-low inflation have boosted confidence. The federal budget has made property investing more lucrative than ever (c.f. Tribune: “FED abolished…stamp duty cut…withholding tax reduced”). On the ground, Islamabad’s well-heeled buyer pool (government officials, business executives, overseas Pakistanis) is primed to act, especially in the face of rising incomes and infrastructure upgrades.
“With inflation at record lows and economic growth on the rise, now is the time to invest in Pakistan’s real estate market,” observes an industry commentator. Backed by plunging interest rates, tax breaks, and major city-building projects, Islamabad’s real estate market offers strong fundamentals in 2025. Investors (residential and commercial) should be poised to benefit from the coming price uptrend and improved rental demand under these supportive conditions.
Sources: Leading financial and real estate reports (SBP, Reuters, Bloomberg), Pakistan budget documents, Zameen.com indices, and market analyses.
