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FBR reduces property valuation rates of major cities

FBR reduces property valuation rates of major cities

The property valuation rates were increased by the Former Finance Minister Ishaq Dar in Budget 2016-17. The rates were increased to bring the property valuation close to the market rates. The second increase of 25-30% was expected in the budget 2017-18. But instead of increasing, FBR reduces property valuation rates for major cities Karachi, Lahore, Islamabad, Rawalpindi etc up to 57%.

Reasons of rate reduction

Less revenue collection

Property valuation rates were increased by 100% or even more in budget 2016. The aim was to bring the more people to tax net and collect extra revenue. But unfortunately tax collection has reduced as higher taxes reduced the property transactions. This rate reduction is an effort by the government to collect more taxes due to expected rise of property transactions.

Protest by real estate agent

Property transactions are the bread & butter of realtors. Due to higher taxes property transactions reduced and realtors saw loss of income. Many real estate agents closed their agencies due to record low income. Property transactions in DHA Lahore reduced from 200 per day to just fewer than 20 per day.

Protest by genuine buyers

Due to high real estate property valuation rates, registry of property became expensive. This move was not hailed by the genuine buyers as even the transfer of property within family members was expensive. To ease this pressure, government has reduced the real estate valuation rates of major cities of Pakistan.

Rate reduction will increase or decrease the property price?

Many real estate agents have hailed this move as real estate friendly, yes it is. Many property experts have predicted the rise of property price, totally wrong.

Real estate prices in Pakistan are not down due to high taxes but due to the blockage of black money. SC, FBR & NAB are investigating the property scams and illegal housings schemes. The ruthless crackdown on black money is the main reason of property price fall in Pakistan as investment has decreased.

When Main Muhammad Nawaz Sharif and Imran Khan Niazi have been questioned about the source of income, so will be very citizen.

The reason of property price fall is, ‘THE SOURCE OF INCOME AS NO CITIZEN CAN HOARD ASSETS BEYOND MEANS’.

Recommended:
PANAMA CASE decision and reality sector

(23) Comments

  1. Mariner

    on   said 

    Dear Experts

    I am an overseas worker, have been saving every penny to buy a small dream home. Pls advise the buying a villa in BT karachi. Is it a right time to buy as gher 47 suggested to wait for some time. Pls adviee tge span of waiting time. Have seen that there is no fall in prices.
    I have a feeling that current prices may be stagnent in coming months or may be years but not falling below of the level what we see noe due to reasons of :

    . Contruction cost increasing.
    . Rupees devalue.

    Pls comment.

    Thanks

    Reply
    • Mariner
      If you are in a hurry to buy a villas I will suggest you to buy FAZAIA BUNGALOWS KARACHI as the project has 5 years installment plans. Good location and in 5 years prices will definitely rise.
      Otherwise you will see massive price fall all over PAKISTAN in the coming months due to crack down on black money and illegal housing developments.

      Reply
      • Mariner

        on   said 

        Good Day

        Thanks for your comments.

        With ref to above comment, will appreciate if you elaborate that every person buying a home is likely to be answerable to NAB or FBR for clarification whether the money he is spending for buying a home, from his life long saving, is black or white ?

        Thanks

        Reply
        • Mariner
          Yes NAB/FBR wants to know the source of income up to the level of Property valuation rates issued by FBR. This is to bring the black or shadow economy to the real/documented economy.

          Reply
  2. Farooq Ghori.

    on   said 

    to Ghar47,

    Really good to be here and find the right trend of real estate in Pakistan…..
    Apart from all this discussion, I have specific question only for Commercial property related investment…..
    Please advise about the real state potential as a short period investor in upcoming commercial Projects along/near GIGA Mall & WTC Mall on GT road RWP.
    Where the agencies still claiming that they going to have big advantage over capital growth and rental values…

    Farooq,

    Reply
    • Farooq Ghori
      Both GIGA MALL & WTC are good project due to their size, location and facilities. You can invest in these projects. But please keep in mind that property prices are falling. Its better to wait as SC/NAB is investigating property scams which will drop the property prices.

      Reply
  3. Dear Sir,

    Can you idea us what is the best time to purchase house/flat in Karachi. Presently, prices are unaffordable still and common man have n’t mussels to bear it, even on rent. when we talk any agent/broker for flat/house for any area in Karachi, the reply is the prices once again increasing and at the start of election, prices once again on top level. Please give us an idea, what is the best time to purchase flat for living purpose, we are totally confused, where is govt. and other authorities, no any check and balance in Pakistan, specially in Karachi. what is the solution for the same.

    Regards,

    Reply
    • Nazir Ahmed
      This is not the ideal time to buy plot or house in Karachi. reason is that NAB is investigating the property scams and China Cutting. Prices will fall sharply once NAB/FBR/SC completes the investigation of illegal construction, illegal housing schemes and property scams.

      Reply
  4. Hafeez Sohail

    on   said 

    Thanks for Ghar47 advise.
    Now after 2 month wait, may i purchase 5 marla plot in Al-hafeez Garden Phase 2 near sozu water park canal lahore @ 625000/-marla with 1 year quarterly installments. Please guide.
    Regards,

    Reply
    • Hafeez Sohail
      Al Hafeez Garden is good investment as its near to Lahore Ring Road and Orange Line Metro Train Station in Dera Gujjran. But its better to wait as NAB is investigating 200 illegal housing schemes in Lahore.

      Reply
  5. Hasan

    on   said 

    I hear a lot of impatient grumbling that property prices are not really falling or not falling fast enough despite all the set-backs to corruption and black money. Here’s my take on this:

    In general prices are sliding or finding it difficult to stay afloat. The way it works is that in a booming market, prices tend to rise very quickly but fall relatively slowly during a down cycle. Property owners who had been hearing all along that their assets have risen to a certain level, find it very difficult to digest that those levels do not exist anymore. It’s called the Anchoring Effect. They are happy to quickly raise price by 10%, 20% or 30% over very short periods of time & then anchor on to that even in a falling market. Hence, in a down cycle they would only gradually & grudgingly lower prices by 2%, 4% or 5% over the same time interval.

    And then property market is complex; it’s not one single entity that behaves in a black & white manner. Even during peak boom periods there would be some properties somewhere the prices of which would not rise that quickly or may even fall. The reverse is also true that even during the worst possible crash, some properties somewhere would buck the trend.

    You mix all these individual, differently-behaving property pieces together and try to discern a picture of the ‘market’.

    And it appears that this overall market is certainly in distress despite what some individual components may be behaving like.

    I believe market’s fundamental wiring is changing. Large parts of it are going from being investor-driven to end-user driven. Secondly, the population of end users too is such that proportion of black money folks is decreasing.

    Taken together, it implies that artificially inflated prices were simply not sustainable. Now sellers would wait a while, then reduce prices by a nominal 2%, then wait some more for a breath of fresh air (which is not forthcoming) & then go lower by another 2%. That’s a very slow process. Many onlookers would hardly see any change. E.g. if we keep staring at a plant or a person we won’t actually see growth. However, there is growth despite not being apparent to human eye. It’s only when we later see a fast-forwarded video that growth becomes obvious.

    Same process works for property too, specially in a down cycle when prices are falling. Have to give it a long enough time span to become material or a 1.5% fall over a two month period would not even register properly.

    How about over 12 months, 18 months?

    Yes that would be more meaningful for a pattern to emerge.

    And not to forget that during this downward movement, there would still be outliers that actually show upward tick. It appears that in the present scenario those positive outliers are not strong enough to pull the entire market up from sliding deeper into a gloomy abyss.

    Recently, I have had the opportunity of interacting with a party that is making an offer for certain properties. They are bidding about 35 – 40% below sellers’ asking prices. Most of the properties they are bidding for have been on the market for at least a year. Yet the sellers are still quoting prices from those bygone days. But matching offers to them are simply not there. Ultimately, those who need to sell are making deals and at prices that prevailed back in 2012 or 2013 i.e. at significant discounts.

    This is for high end of the market where black money used to rule supreme.

    Another example from low end: A certain property in an outlying area of Karachi namely Buffer Zone was being quoted at 1 crore 40 lacs. It had risen rapidly over the 2014-2016 period. Now the sellers have been simply unable to get a buyer at 1.4 crore. Consequently, in bits & pieces they have reduced asking price to an even 1 crore over the last one year. When seen in the lens of a year, it’s quite a steep fall of almost 30%. And still, no buyers. So if they really need to sell, the gradual fall in asking price shall continue.

    This phenomenon is expected to intensify over coming months as the periodic down swing of the decade cycle is further exacerbated by society’s push against black money. These two forces are complimenting each other to the anguish of investors.

    Karachi’s DHA is suffering. Brand new 500 sq yards houses are still being quoted at Rs. 12 crores for a year or so now. But hardly any takers. It’s unfortunate for those who bought plots at say, 8 crores then constructed a house for 2 crores to arrive at a total cost of 10 crores ….which they then wished to sell for 12 crores.

    This was indeed the name of the game for a number of years until recently. Not anymore.

    Now it’s not happening (i.e. a deal) for a vast majority of sellers who had been playing the game for years & were still in it or for those who entered the game more recently, say over the last couple of years.

    The phenomenon of an investor (which is basically another name for a category with black money; and this category comprises about 80-90% of so called ‘investors’) buying from a similar investor to sell to yet another investor …. all for quick profits as well as to whiten money….is mostly over now. They are stuck and as time goes on many would be in dire straits. E.g. in case of new 500 sq yards houses in DHA, an asset that may have cost them 9 – 10 crores, forget profit, now they can’t even recover cost. Ultimately, they shall have to take a hit of a few (could even be several) crores even below their cost / investment. This would be true whether they sell now at a steep discount or several years later at or near their wished-for price of 12 crores and then claim that they finally got their price. But in reality they would have lost anyway due to time value of money.

    I say this because majority of such houses that were on sale around middle of 2016 …. still remain unsold when it’s 2018. And now the perception in the air is even worse than it was back in middle of 2016. Already, inflation has eroded profit margins even if they stick to old asking prices.

    In addition to the financial hit, there would be the complication of a legal hit as well, when increasingly questions are raised by properly staffed government departments (where for years merit used to be disregarded) from our investors as to the source of their disproportionate-to-income ‘investments’ …….and lo & behold a good number of our investors are unable to furnish plausible explanations.

    This phenomenon is expected to gain momentum as some high profile arrests of corrupt elements come about. Many of our erstwhile ‘investors’ and / or their front men shall be lucky if they escape arrest or are somehow able to find buyers for their properties at even HALF the asking prices before their bail runs out.

    Yes, half …and that too, for a brand new house. Why?

    Because by the grace of Allah, society has finally started process of re-engineering itself after decades, to operate mostly (not entirely, but mostly) on the basis of white / legal money. And the problem with white money is that most of it simply doesn’t operate at those stratospheric levels.

    In other words, the abyss is going to get much darker & gloomier for investors / sellers with a shady background, specially for high value properties and more so in areas which were playgrounds of unscrupulous & corrupt elements.

    Reply
    • Hasan
      Excellent and very detailed analysis about the current situation of PAKISTAN REALITY MARKET
      I would like to add few words;

      1-WHAT IS PRICE?

      Price is what buyer can pay. THE REAL PRICE
      Others are just the asking prices
      For example
      Price of an apple is PKR 10/-, people will buy
      Price of an apple is PKR 50/-, people will buy
      Price of an apple is PKR 1000/-, people will leave apple and buy other fruit.
      SO REAL PRICE IS THE SELLING PRICE NOT THE ASKING PRICE.
      So affordability shows that purchasing power which determines the real/selling price of an item

      2- PAKISTAN REALITY SECTOR IS FACING AFFORDABILITY OR PURCHASING POWER CRISIS

      As per above example people can buy house as per their purchasing power. Rich will buy expensive and big houses where as normal people will try to find affordable small homes.
      Historically property sector is famous to whiten the black money. Same is true for PAKISTAN. People with black money have greater affordability and have bought expensive properties. Due to huge influx of black money from 2010-2016 we can see abnormally high property prices.
      But now black money is chased in every corner of Pakistan so investment has reduced in reality sector.
      NOW NO ONE CAN DARE TO BUY PROPERTY WITH BLACK MONEY AS SC/FBR/NAB are chasing it.
      WHO IS LEFT?
      People with white money who have low purchasing power.
      SO PAKISTAN REALITY MARKET IS ADJUSTING ITSELF AS PER THE PURCHASING POWER OF HONEST TAX PAYERS.

      3- TAX REDUCTION AND HOUSE PRICE

      Bring all property taxes to zero, even then property price will fall. Because purchasing power of honest tax payers is very low as compared to property prices. PROPERTY PRICES IN PAKISTAN ARE FALLING DUE TO BLOCKAGE OF BLACK MONEY.

      4- HOW LONG PRICES WILL FALL?

      Property price fall is a long process and can take many years. FOR EXAMPLE, Property price in DUBAI is still 30% down from peak in 2008. SO 30% LOSS AND 10 YEARS OF PRICE STAGNATION.
      In Pakistan there are two case scenarios, prices will come down to the purchasing power of honest tax payers. or purchasing power of honest tax payers will increase. First case is true as prices will come down to the level of the purchasing power of honest tax payers.

      5- HOW MUCH PRICE FALL IS EXPECTED?

      Just see a comparison;
      Ideal house price to income ratio = 1:4
      Affordable house price is when people can buy house after paying 4 years of their sallary
      AS PER SITE NUMBEO (CLICK TO SEE THE NUMBERS https://www.numbeo.com/property-investment/gmaps_rankings.jsp)
      House price to income ratio in USA = 2.5 (A Highly affordable market)
      House price to income ratio in PAKISTAN = 10-11
      SOME SIMPLE MATH;
      There is a couple of professional. Both husband and wife are working. Both have pay of I LAC PER MONTH. So yearly pay of couple is 24 LAC. Multiply it by 4 years = 96 LAC.
      So a professional couple in PAKISTAN can buy a house of worth 1 Crore maximum. So 5 Marla or 125 sq yards house.

      6- HOW PAKISTAN REALITY SECTOR WILL BEHAVE IN FUTURE?

      Pakistan will see the similar price trends as have been witnessed in DUBAI. 30-50% PRICE FALL FOLLOWED BY MANY YEARS OF STAGNATION.
      PROPERTY PRICES OF 2016 WILL NOT BE RECOVERED TILL 2026.

      7- THIS PRICE CORRECTION IS ALSO REDUCING THE HOUSE SIZES

      THIS PRICE FALL IS A BLESSING FOR PAKISTANIS as we will see best use of land.
      PRICE FALL & AFFORDABILITY CRISIS have great impact on house size. High-end luxury houses are not affordable with white money so we will see smart houses in future.
      Like European market we will price houses by number of bedrooms instead of plot sizes.
      PAKISTAN HAS SAME POPULATION DENSITY LIKE UK.
      Average house in UK is BUILT ON 2 MARLA OR 50 SQ YARDS PLOT. SO IN FUTURE, 5 MARLA OR 125 SQ YARDS HOUSES WILL BE LARGE HOUSES.

      8- DAYS OF OVERNIGHT PRICE HIKES ARE GONE

      Investors in DHA LAHORE are crying due to no buyers. One guy I met told me that he built a house in PHASE 8 and wanted to sell at 4 crore. After 13 months he is willing to sell at 3.25 LAC but no willing buyer.
      A SIMPLE MESSAGE;
      SATTA culture of reality sector are over. Now houses are for living not for hoarding or whitening of wealth.

      Reply
    • Zahid Ali

      on   said 

      Welcome Hasan after a long time
      Stunning Analysis
      I need to clear one thing, from Hasan and ghar47 analysis, it seems that the next decade cycle of upward prices of real estate will not start from 2022-2023. However from the experience of last three decades, it can be concluded that the next upward cycle of real estate prices should start from 2022-2023 and ends on 2025-2026. ghar47 and Hasan are requested to clear.

      Reply
      • Zahid Ali
        You are talking about the property cycle of 10 years. Its true first property boom in Pakistan was from 2002/3-2005/6. Then next property boom was from 2012/13-2015/16. So next boom should be like 2022/23-2025/26.
        Yes it can be as per historic property cycles of PAKISTAN.
        I would like to add one thing that in past property market behaved normally as black money was not blocked.
        As now block money is ruthlessly chased so property cycle might be different.
        Lets see how the future unfolds for reality market.

        Reply
  6. Shoaib

    on   said 

    *News updates.* Allhamdulillah Ban on High Rise Building has been lifted by Supreme Court
    today 14-01-2018 . All Construction activities will be back on track from now on .

    Is this news correct ?
    If yes what will be the effect om property prices from this.

    Reply
  7. Nazish Fatima

    on   said 

    Dear sir,
    you have said that their is chance of property prices fall and February 2018 would be appropriate time to buy property.

    But according to contact with real estate agent and from newspaper i found that property prices have increase about 5% – 10%. i am talking about big properties like 500 Sq/yard bungalows.

    If i talk about karachi , DHA , malir cant, PAF falcon, Askari , then these areas property prices increased, rather than decreased.

    now what you your forecast price and advice’s for your reader who want to invest their money in realty sector.

    Reply
  8. Muhamamd azeem uddin

    on   said 

    sir,
    by the grace of god i have seen the time period of panama case decision, property valuation from FBR, Threat from USA, Very debt of economy, budget deficit, trade deficit, devaluation of PKR, going downward trend of reserve,

    BUT NOTHING CAN IMPACT OF REAL ESTATE PRICES?

    if possible then kindly give your technical analysis ?

    as i understood real estate prices can going DIP only when state bank have increase interest rate would about 10 -11 %. otherwise i dont see any price downward in real estate.

    Reply
    • Muhammad Azeem Uddin
      High rates are coming due to falling economy and declining value of PKR.
      At the moment PAKISTANIS have low purchasing power due to;
      Falling economy
      Declining value of PKR
      Low remmitances
      Increase in unemployment
      PAKISTAN REAL ESTATE PRICES ARE FALLING DUE TO 1 FACTOR
      LOW INVESTMENT IN REALITY SECTOR
      Low investment in reality sector is due to;
      Decreasing purchasing power & crackdown on black money as no one can dare to invest in reality sector with black money.
      WHEN INVESTMENT IS LOW IN REALITY SECTOR, property prices fall, so whats happening in reality sector.
      SC/NAB/FBR is investigating 1000’s of property scams and illegal housing schemes.
      SO MORE PRICE FALL IS COMING.
      PAKISTAN REAL ESTATE SECTOR HAS CHANGED FOR EVER FOR BETTER
      As no one can hoard properties or can park black money in reality sector.
      SO NO ONWARD REALITY SECTOR IS FOR GENUINE BUYERS OR PEOPLE WITH WHITE MONEY.
      As white money people have low purchasing power so prices will fall. HIGH END REAL ESTATE IS THE BIGGEST VICTIM.
      THE SAYS OF SATTA CULTURE IN REALITY SECTOR ARE GONE.

      Reply

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