Why property prices are sky high in Pakistan?
Average salary in Pakistan is PKR 300,000 per year, but average house price in Pakistani is PKR 500,000. According to the world house affordability level, average house price to average annual salary is 1:5, where as in Pakistan its 1:17. Common Pakistanis cannot afford to buy property in Pakistan. But billion dollar question is why property prices are sky high in Pakistan? Simple answer is that property prices are sky high due to influx of black money in reality sector.
Black money circulation in Pakistan
Black money is one which is earned from irregular or illegal means. But according to the government, money that is received in cash through underground economic activities, and is not taxes, is the black money. Government officials say black money in Pakistan is approximately 20-25% of the real economy.
Why black money in reality sector?
Black money and real estate sector has long history of love affair. In Pakistan and many other countries, real estate sector was one of the best sources to whiten the black money. Property prices are dictated by the purchasing power of buyers. When people have more buying power prices does increase and vice versa. But when black money enters the reality sectors, it massively increase the property prices and in most cases way out of the affordability level of genuine buyers.
Reality sector without black money
Black money curbing has always positive impact on property markets. Firstly, without black money, property prices fall. Secondly, it makes properties affordable for masses. Thirdly, real estate transactions increase as people start buying properties. Fourthly, realtors get good business due to increase in real estate transactions.
Unless the government curbs the black money, property prices will keep on rising. Genuine home buyers will be unable to buy homes.