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Interest Rate Increase and Pakistan Property Sector

Interest Rate Increase and Pakistan Property Sector

State Bank has increased the main policy rate by 100 basis points. So interest rate has increased to 7.5% from 6.5%. The interest rate has been increased to control the rising inflation. Inflation is rising due to increase in crude oil price in the world market and also due to the depreciation of Pakistani Rupee. Let’s discuss Interest Rate Increase and Pakistan Property Sector.

How interest rate impacts real estate sector?

Increase in interest rate:

When interest rate increases, banks give more profit on the saving counts. So people sell properties and deposit their money in banks. The massive sale of properties results in capital flight from reality sector due to which property prices fall.

Decrease in interest rate:

When interest rate decreases, people get less profit on their saving account. So people withdraw money from banks and invest in reality sector. In short due to the rise in interest rate, investment in reality sector increases which leads to property price rise.

How interest rates have impacted Pakistan real estate sector in past?

Pakistan has observed two real estate booms in the 21st century. First boom lasted from 2003 to 2006 and the second from 2013 to 2016. The reason of the both real estate booms was the record low interest rates at 7.5% and 5.75% respectively. During both real estate booms, people got less profits on their saving accounts. So people withdrew the money from banks and invested in reality sector. The massive investments in reality sector resulted in property booms.

What is in store for Pakistan property market?

Pakistan real estate sector is stagnant at the moment due to high property taxes, low investments and crackdown on black money. The volume of real estate transactions is record low whereas property prices are 30% down from peak of 2016. We are already facing the house affordability crisis and luxury property market is hit hard which thrived on black money. Now as interest rates are increasing, so the price fall will gain more momentum in the coming months.

Recommended:
Pakistan Real Estate Forecast 2018

72 Comments

  1. muhamamd azeem uddin

    on   said 

    Dear Malik anwar sahab,
    as you are saying that government will produce % million houses : just for your information :

    The government have no DOLLAR , even just to pay the mark up on loan. Then how this possible to give 5 Million houses.to build 5 Million houses government have required 100 Billion USD and according to State bank reserve is only 9 Billion.

    so it can be easily understood for all reader that …
    It is just a SLOGAN for getting vote and nothing else. our new PM has succeeded on his mission.he want to get seat of PM,, he got it.

    Where as question for poor / middle class pakistani, who have saved money in PKR they have just loss 20% value of their money, it means they are more away to buy home.

    i dont mean to discourage i just want to say them including me that having strong believe on Allah , because he is the best provider. where as question on base of science their is no chance for middle class to buy home for their children according to their income ratio.

    Reply
    • Azeem Sb,

      Your response is available on below link, kindly read it carefully.

      https://epaper.brecorder.com/2018/07/27/2-page/729925-news.html

      However. there are following schemes are in pipeline:-

      1. it is political base (IK), which you have discussed in blog
      2. SBP schemes, according to SBP scheme (link shared with you).

      i read the complete article and also associated with this article, the supply of houses will be bullished soon, once supply bullished according to the demand, then the prices will be stabilized.

      NAB/SC/ other regulatory regulators are continuously monitoring black money holders, hope, now the things will be in positive route and black money will not be involved in real estate.

      Reply
      • muhamamd azeem uddin

        on   said 

        Dear Nazir ahmed sahab,
        Thank you for sharing link. yes it is also right that if the supply side will increase then the price of real estate become low. As well as SC/ NAB is chasing black money out from property market which is really remarkable step.

        Hope the USD is gong down similar in future home prices will reduce and pakistani people get home for their children.

        i pray Allah mercy for my country and country men. take care of yourself having good health, prosperous and happy life.

        Reply
      • Nazir Ahmed
        5 million house construction is totally possible.
        Its actually 1 million homes every year.
        Private sector is building 1.5 LAC homes.
        Rest is 8.5 LAC homes annually.
        I will share the details soon.
        BUT AFFORDABLE HOUSING WILL RESULT IN COOLING THE OVER HEATED PROPERTY MARKET.

        Reply
      • Ahmad

        on   said 

        I guess if we are not importing any item for construction of those houses i.e locally produced like cement, steel, fittings etc then we don’t need to worry about Dollar ( except electricity being used for producing those items, as we need oil to run electric plants). Infact it will be good for Rupees because more circulation of rupees means stronger economy. It is just my 2 cents and I could be wrong.

        Reply
        • Ahmed
          By next election 2023 dollar will be 45 and oil at 40.
          Pakistan will emerge as leading economic power
          Plus the construction of houses and other development projects like CPEC will start another industrial revolution of PAK.
          Property sector will be real without black money. And people will invest in job creating sectors instead of dumping money in reality sector.

          Reply
  2. Farooq Lari

    on   said 

    Malik sb
    Sad news. I have been waiting to buy 10 marla possession plot in Lake City Lahore on your advice. It was around Rs. 75 lacs (M2a) in March 2018 and just yesterday reached Rs. 90 lacs when i called the dealer.
    What is going to happen?
    Regards

    Reply
      • Umer

        on   said 

        Dear Malik sb,

        Thanks for your honesty input but do u also take a moment to read what other sources say? If you follow zameen.com blogs, their readings of just today say that markets are on track and going to see boom soon…totally confusin!!

        Reply
        • Umer

          on   said 

          Imlaak.com also says that amnesty scheme brought 11 billion dollar to Pakistan in first 7 months of 2018. Means if black money went out, same was injected by overseas Pakistani. Their update on DHA phase by phase also mention that prices in all phases are just increasing day by day….. What to do???

          Reply
          • Umer
            So NAB / FBR shared the details with imlaak and zameen amazing.
            Amnesty scheme has failed as it was a trap.
            Why people with black money are given amnesty scheme. Why not 3 time prime minister Nawaz Sharif? The fault of Nawaz Sharif is that he couldn’t show the source of income and his LONDON flat will be grabbed. Very bad.
            As per my information DHA Market is dead
            No filer buyers
            Non filers can’t buy property worth 5 million or above.
            Crackdown of NAB / FBR on properties bought with illegal money.
            With so many factors if property prices are increasing then its a sure miracle.

          • Umer

            on   said 

            Sir I need to buy plot for home construction and I have been following you for your past many months, holding my purchase so I would buy when property is down. And you have mentioned many times 4th quarter will be best time to buy despite many other sources say property is increasing and they never said it will come dow. So need your expect advice in view of confusing information.

          • Umer
            Yes By 4th quarter property prices will be low.
            NEW GOVERNMENT will build 5 million affordable houses.
            This will crash the property prices nationwide.
            Stay calm.
            This are getting better for honest tax payers and working class.

      • M ANWAR

        on   said 

        ok sir, but when go to buy any property in market, dealer says the rate but when we wait for 3-4 dealer increase the rate, it means properties rates are not coming down.

        Reply
        • M ANWAR
          Wait is better. These are just the tactics of dealers. Dealers are selling their cars and homes due to zero income. There are two rates. One when you want to buy property and one when you sell property. In DHA Islamabad dealers are buy 10 Marla plot for 70 but trying to sell at 95.
          Beware of the tactics.

          Reply
  3. Hasan

    on   said 

    It’s Show Time and here’s the big picture:

    1/ Tax Amnesty Scheme is over.
    2/ Non – Filers cannot buy property at all over Rs.5m.
    3/ Elections are behind us.

    Officials claim that under Tax Amnesty Scheme, anything from 65,000 to 70,000 people filed declarations. Ok let’s take their word for it. In fact, let’s be extra generous a la Haatim Tai & consider a figure of 100,000 people having filed declarations of hidden wealth. What does it mean?

    Before all this circus, the number of Tax Filers in Pakistan were around 1.26 million. Even if we assume that each and every one of the declarants under Tax Amnesty scheme is a freshly minted filer, it still only takes the total number of tax filers to around 1.36 million.

    In a population of 220 million plus, this 1.36 million is hardly anything to write home about.

    And the sad part is that we have assumed all those 100,000 declarants were previously non-filers. That’s obviously not the case at all. In fact majority were likely filers who just happened to have not declared certain portions of their wealth. Therefore the number of new filers has barely increased beyond the original 1.26 million number.

    So now who’s going to bid for properties over Rs. 5 million?

    The answer: Not a whole lot of people.

    Which is what has happened to such properties. If owners & brokers expect the grand group of less than 1.4 million filers (most of whom are humble salaried employees of limited means) to lift property values to new heights, then cows shall start flying and that too to the moon & back.

    Does not mean people do not have money. Oh they have tons of it. It’s just that the real fat cats (who comprised the main group of property investors) are simply not filers. That’s the bottleneck which makes things a bit nasty for millions of such esteemed non-filing gentlemen, still quite reluctant to enter the tax net. They’ll have to figure out alternative parking lots to park their untaxed money.

    In the meantime the high value property market can keep waiting for buyers to approach with tantalizing offers via the door of tax filing status & (un)gracefully grow old in the process.

    Reply
    • Hasan
      Today is a bad day for the people with black money
      Pakistan economy is in such a mess only due to black money and money laundering
      NAB, SC & FBR has zero tolerance for black money.
      Everyone knows that property sector is best to park illegal money.
      THE ONLY QUESTION THAT IS ENOUGH TO CRASH REAL ESTATE MARKET IS ‘SOURCE OF INCOME’.
      This amnesty scheme was not an opportunity to whiten the black money.
      BUT
      Just a trap to know the people who have ill-gotten money.
      WHY?
      Reason is that why Main Muhammad Nawaz Sharif was not given the option to whiten the black money. Why he was punished if he couldn’t describe the source of income.
      So only way property prices will go is downward.
      SOURCE OF INCOME
      5 MILLION BRACKET for non filers
      These two points will totally crash the luxury property market.
      Dubai real estate prices are just 25% of what they were in 2008.
      Situation is not different in Pakistan.
      Pakistan will witness the worst real estate crash. A Dubai style property crash followed by many years of stagnation.
      But properties worth less than 5 million will have strong market due to high demand.
      But question is how many properties are under 5 million mark, at-least no the houses.

      Reply
    • rizwan

      on   said 

      EXCELLENT ANALYSIS HASAN BHAI IN SHA ALLAH ITS TIME FOR GENUINE BUYERS NOW AND PRICES WILL HOPEFULLY CRASH IN SHA ALLAH

      Reply
    • Nazir Ahmed
      Excellent blog sharing that clears the real picture.
      I would like to add few words.
      PAKISTAN is in a situation where can’t tolerate corruption.
      Corruption has nearly destroyed PAK Economy.
      Crackdown against black money is just 2 weeks away.
      So even IF NO LAW OF BUDGET IS IMPLEMENTED LIKE BUY BACK SCHEME OR 5 MILLION LAW
      Even then property price will crash big time

      WHY? CASE OF LONDON FLATS (EVERY PAKISTANI HAS TO SHOW THE SOURCE OF INCOME)

      Every citizen has to answer a simple question THE SOURCE OF INCOME.
      Government will grab the property where owner can’t show the SOURCE OF INCOME. The best Example is the AVENFIELD APARTMENT LONDON. Nawaz Sharif has failed to show the source of income so government is now in the process to hold the flats and even AMNESTY INTERNATIONAL has requested UK government to handover the flats to PAKISTANI Government.
      So now onward property prices will be what people with white money can afford.
      THE END OF SATTA Culture in property market.

      CURRENT PAKISTAN REAL ESTATE MARKET SITUATION

      Prices are falling as there is no buyer in the market. A lady from USA bought 1 Kanal plot in DHA Phase 1 Islamabad 3 years before. She paid 2 CRORE. Now she is desperate to sell at 1.35 CRORE BUT getting the offers of 1.2 crore maximum.
      In DHA Lahore real estate transactions are record low at 5-15 whereas the daily transactions in 2016 were 150-200.
      Bahira Town Lahore market has also slowed.
      So PAKISTAN is heading towards DUBAI style real estate crash. In Dubai property prices are 75% down in 2018 from peak of 2008.

      Reply
  4. Muhamamd azeem uddin

    on   said 

    Dear zahid ali,
    thank you very much for your comments and shaire with the reader more information.

    Regarding USD, i have many times acknowldge in this blog that the return of real esate and stock market is quite abnormal and media is playing very negative role. we pakistani thinking that china will do everythings like they will manage solid and liquid waste, they will set up industry, they will export and we only drink tea , smoke cigerate , go to bed late and awake late hours, because china is our friend.

    This missing link make rich people more richer and poor become more poorer, but the ration of rich is quite very few.

    it is bad luck for our government organization did not work properly and once the rain have come then we should think what we will do, same things happen in china cutting, land mafia and even ex pri minster case that court is asking last 30 years money investment .

    similarly same things happen on pakistans economy. when everything has finished and EXPORT has downward trend and their is no money to run the country even it is big question we import pulses, tea, milk, petrol, so please consider if this things we can not import because LC will not be open then where the nation 220 Million people should stand.

    As i have told many times having my experiance 23 years running factory that everyone will see the investment and their return, the rate of return is quite very high on real esate and stock so why a person took pains taking problem to setup manufacturing unit.

    it is quite very easy for him to invest in real estate and make double his investment having no RISK.THEN WHATS AND WHY A PERSON SHOULD INVEST INDUSTRY, this is the main factor pakistans economy is going down even from many countries in asian region.

    To increase EXPORT is not easy that today you decide and tomorrow it will be increased, to set up industry and run and compete the international market and get orders it will need at least 18 months.

    USD VS PKR : As i have told to you that PKR will reaches 150 with in two months , but it seems not possible for you, sir if government can be able to get loan from IMF then may be possible it should not increased, otherwise it must go 150.

    If the internal war is going on like this as we have see late night court decision i mean Hanif abbasi case, and one islamabad judge statement, then i see the USD will reaches 200, on december 2018. may be 250 on january or february 2019.

    Because you dont have money to run country and still the government not have set DEFINITE MAJOR PURPOSE.

    so lets see

    Reply
  5. Nazish Fatima

    on   said 

    Dear sir,
    i have read in the news paper that Venezuela currency have depreciated about 96%. my question from you

    1) what is the current real esate prices in venezuela
    2) what is the impact of Venezuela real esate prices on the devaluation of currency, how much it goes up or down

    Reply
  6. Muhamamd azeem uddin

    on   said 

    Dear sir,
    If USD will reaches RS 150. i mean 1 United states dollar is equal RS 150. Then what will be the impact of property price.

    1) open residential plot prices
    2) Home price

    kindly also support your answer that If Dollar reaches RS 200 at the end of the year i mean December 2018, then what will be the impact of property price.

    kindly also note down that Modies have down graded rating NEGATIVE , it means it will be very hard for government to get financing from the IMF. similarly IMF never support the money for current deficit account and Budget support, IMF only give programme to support RESERVE.

    in the whole scinerio what will your analysis for property market , i mean where you see the prices on january 2019.

    Reply
    • Muhammad Azeem Uddin
      High dollar price will take the oil price to 130/liter
      People will be spending more on food
      Less saving
      So low investment in real estate sector
      So price fall
      50% down from current value

      Reply
    • Zahid Ali

      on   said 

      I do not think that there is direct relation between currency devaluation and property values, except construction cost which would be increased but then it would be more difficult to sell out property at further high price.

      However somebody may think in Pakistan that his property value is dropped by 25 percent in terms of US dollar as the Pak Rupee is devalued by 25 percent.

      In order to reap the benefit of Pak Rupee devaluation one had to sell his property before December 2017 and purchased dollar which is obviously a difficult task.

      Property decade cycle is in recession phase and will complete its phase as normal. The two things that may trigger the Pakistan property recession cycle, is how much the interest rate will rise in Pakistan, and global recession which is predicted to happen in between 2018-2020.

      I do not think that the rupee will be devalued up to 150. It will stay between 130 and 140 for long time. This is my opinion, based on that, it is already devalued much and now it should stable.

      There are many cycles are running simultaneously. few important are given below.

      Real Estate
      Stock Exchange
      Gold plus other precious metal.
      Interest rate (fixed deposit)

      So in order to reap the maximum benefit one have to switch over his investment from one basket to another basket at right point of time. However it is very difficult to predict the right point of time.

      In the last two years, whoever Pakistani invested in US dollars reaped the maximum benefit as compare to any other investment.

      Reply
    • Zahid Ali
      The 10 years were blessing for the estate agents and hell for middle-class. Things will start changing from 1 August as next round of crackdown on black money is on the corner.
      NAB has already investigated the 1000’s of illegal housing schemes in PAKISTAN.
      Many housing schemes will be annexed by government or declared illegal.
      We should stand with the people who are genuine buyers. SC should protect the people who bought property in illegal housing schemes by spending their life savings.

      Reply
  7. Ahmad

    on   said 

    Unable to understand one thing when dollar is flying vertically upward like NASA shuttle, interest rate is creeping upward, purchasing power of common people is getting worst, major crack down is going on black money. Then who will buy the property? Situation is so gloomy that middle class people will be worrying about their day to day expenses rather than investing in real estate.

    Reply
    • Ahmad
      This is the point many people don’t want to understand.
      PAKISTAN Real Estate Sector is falling apart. Many people have lost their lifetime investments but there are still people who are just yelling that property prices are going up.
      PAKISTAN Economy is just few steps away from Venezuela and my question is that how many people want to buy property there?
      Simply people and media is twisting the reports.
      The reality is that PAKISTAN Real Estate sector will revive only after few years.
      Globally property prices are falling.
      If we see the last trends, property prices crashed in Pakistan in 2006 whereas in West in 2008.
      So if recession is expected in 2020 so property prices in PAKISTAN will fall this year.
      Wait as ANOTHER ROUND of crackdown on black money is just on the corner in few weeks.

      Reply
          • Malik

            on   said 

            Malik Anwar
            incomplete info u r giving as usual, remember there are not only new investors reading your stuff, their are poor people who have already invested and they might dispose off their valued properties because of ur childish input on thier forum and u will be responsible for their losses. there are properties which will gain from these crack downs and some will lose. for example a plot in phase 8 is around 230-240 this might lose let see as per ur calculations it comes down to 160-170. at the same time phase 9 prism average plot which is around 110-115 will gain in next two yrs after possession average plot still has room because its location is better than phase 8 so once possession is given it can easily go equal to phase 8 level if not 170 but at least 150. I don’t have time otherwise I can give u 100 examples.
            we all are just giving opinions and should not push people with out discussing all angles/ options.
            I would request you to guide people where they should invest i.e for 5 marlas, 10 and 1 kanal which are safest options. when they should invest. what are the other options if property is not suitable at the moment. Give only opinion pls not regimental instructions.

          • Malik
            If prices are falling its not my fault
            I have not increased the interest rate
            I have not devalued the currency
            I have not made the law that non filers can’t buy property
            I have not started crackdown on black money
            I have not ousted Nawaz Sharif and Jahangir Tareen on holding the ASSETS BEYOND MEANS
            All these things have caused the property price fall in PAKISTAN.

          • Malik

            on   said 

            Malik Anwar
            first read what was the question then answer please. question was not that why property prices came down. read it again please. such a illogical guy

        • Zahid Ali

          on   said 

          Usually property expansion cycle duration is 3 years and recession cycle duration is 7 years. In recession cycle, People hold the property and think that they will be able to sell the property after 6 months or 1 year as per their demand but normally they do not succeed. Currently real estate agent are selling the opinion that after election property market will be better. Lets see

          Reply
          • Zahid Ali
            This is the normal real estate cycle of 10 year.
            But situation in PAKISTAN is very different.
            The next government has no money.
            The only way to collect money is to start crackdown on back money to annex the properties and ill-gotten wealth.
            Dollar at 130, interest rate at 7.5%.
            If prompt measures are not taken then PAKISTAN will be bankrupt soon.
            ANOTHER QUESTION?
            Why Property in KARACHI is expensive than property in DUBAI?
            Karachi has water issue, security issue, planning issue. Karachi is full of garbage and same are other PAKISTANI cities.
            PAKISTAN high property price is just because of massive money laundering and corruption.
            The next wave of crack down on black money crash the property market to a level we have not seen in PAKISTANI history.
            FOR EXAMPLE DUBAI REAL ESTATE
            Dubai is famous for parking the global black money.
            But due to new amnesty international laws now DUBAI is returning the black money to the relative countries.
            Prices in Dubai can be seen.
            Property prices in DUBAI 2018 are just 25% of the property prices they were in 2008.
            IN PAKISTAN
            When property prices started abnormally.
            2013.
            So property prices will go to the level of 2013 or 2012 again.
            THE FUTURE PROPERTY MARKET OF PAKISTAN WILL BE VERY DIFFERENT. AND PROPERTY MARKET WILL RISE BY 2023 ONLY DUE TO THE DIRECT FOREIGN INVESTMENTS.

  8. Zahid Ali

    on   said 

    I have been witnessing the internet advertisement of properties for sale. Almost all advertisement of houses are more than 6 months old. It means that although the rates are not decreased too much (maximum up to 20% to 30%) but seller is unable to find a buyer.

    This type of trend is not only witnessing in Pakistan but all over the world. The interest rate is also rising all over the world. Every other expert is predicting next world wide recession in between 2018-2020 and it is predicted that the next recession will be a gigantic recession as compared to 2008 recession.

    In Pakistan, the interest rate will be 10% percent at the end of 2018 as per expert yesterday in kamran khan show. All other conditions for the stagnation of property market are already fulfilled except interest rate, which will be fulfilled soon. In Pakistan the interest rate have touched 19.5% back in 1997. The current condition of Pakistan economy is also worst rupee devaluation will hit the interest rate.

    Rental yield of property is in between 3 to 4 %. So for investment purpose, it is not a good idea to invest in property (especially in plots) at this point of time.

    Property price was stagnant between 2008 to 2013 and the same will be repeated between 2018 to 2023. Although there is always some exception.

    The business expansion cycle is come to an end in almost all part of the world. Now it is the time of recession cycle which can be severe at any time.

    Reply
    • Zahid Ali
      Property prices are falling in London after 2011 for first time. If you observe the global property trends you will see that real estate prices are falling worldwide.
      If we see last recession 2008-2009, property prices in PAKISTAN were record low. Same will happen in 2019-2020.
      West has not fully recovered from the credit crunch of 2008.
      FOR EXAMPLE
      Economy of UK in 2008 was 2.8 trillion dollars and now it is 2.6 trillion dollars.
      France is same.
      Whereas Turkey, China and Russia are better than 2008.
      Western economy model is based on mortgage system.
      So cooling property market is the sign of another big recession and most experts predict that this recession will be deeper than that of 2008 as interest rates are low and can’t be lowered more in many countries.
      Falling economy always leads to property prices fall.
      FOR EXAMPLE; Dubai property prices are just 25% of what they were in 2008.

      Reply
  9. Hasan

    on   said 

    There is this very curious phenomenon of property brokers artificially marketing high prices and advising their clients to do the same, even though the market for high value properties is quite dead for some time. Hence, a property may not be selling for months on end or even for over a year, yet they ‘increase’ asking prices after some time.

    Why is this being done?

    Basically to fool the people into thinking that market is as strong as ever which is why – according to them – prices are increasing. That is what they would like everyone to believe.

    How long could this game be continued? As long as there are brokers 

    However, people with money to buy high value properties are also not fools. They know when it’s a bluff. Brokers can keep claiming whatever they like but sometimes one has to analyze the situation oneself, use own judgement and proceed accordingly.

    Remember, this is only for high value properties. It may or may not apply to other types of properties.

    So some rules of thumb in a down market:

    For a property worth say, Rs. 18-20 crores e.g. a 1000 square yards used house (10-12 years old) in Karachi’s DHA …. If it has been on the market for 5 – 6 months & still unsold …. then one may discount price by around 20%.

    (Why not a discount of 10%? Well, it would be too close to the most recent asking price i.e. that’s the discount seller would have given anyway from his asking price …. If he had been able to find a buyer. It’s because he has been unable to find buyers over a certain period of time, that’s why discount has to be steeper than 10%. In this case we have made it 20%.)

    So new range would be: Rs. 14.5 – 16 crores after a discount of 20%

    At this point it does not matter whether price miraculously ‘increases’ as per brokers’ claims to say, Rs. 20 – 22 crores. For practical purposes you may consider the range to be from Rs. 14.5 – 16 crores.

    Assume, another 4 – 6 months go by after this discount.

    Now there has to be another discount. Let’s make this somewhat smaller than last time’s 20% as prices are now operating on a lower magnitude. So let’s consider a fresh discount of 15%.

    New range would be: Rs.12.3 – 13.6 crores after a discount of 15% from last range of Rs.14.5 – 16 crores.

    It means that for a used DHA 1000 square yards house, that has been on the market for about a year, and still unsold, and whose original asking price was around Rs. 18 – 20 crores, should now be priced at a discount of around 30% + or at a range of Rs.12.3 – 13.6 crores.

    Ofcourse this downward spiral does not go on indefinitely since property would not be priced at zero. Prices do plateau at some point. However, in our current market the plateau situation is still quite far since black money had really hiked prices over the years. But in general, one may give an opinion that prices have potential to fall to levels of 2010-12, if not in absolute nominal terms then in real value terms.

    So if you research the market, you’ll find this is approximately where such properties actually are (or headed to) at the moment … whatever some brokers try to tell you. If the market was really so hot then such properties would have found buyers long ago. The fact that sellers are still trying to sell them and so much time has passed without a deal, then whether they like it or not those high asking prices do not depict reality. If they really want to make a deal, it’ll have to be at significantly lower price points, approximately equal to those that prevailed many years ago.

    Or they (sellers) may wait it out until say 2023 and then maybe find a buyer who’ll offer them Rs. 18 crores for such a house at which point the seller shall claim that he has made a ‘profit’ by holding out all this time.

    Unfortunately, such ‘profits’ are a figment of their imagination. There’s a whole lot of difference in purchasing power between Rs. 18 crores right now as opposed to Rs. 18 crores half a decade from now. In effect, the gentleman seller (if he sells in year 2023) would have probably sold his property for a real value of around Rs.12-13 crores in terms of purchasing power or time value of money.

    In other words, Rs. 12-13 crores now might be approximately equivalent to Rs. 17-18 crores of year 2023 due to inflation. There would likely be no difference in real terms.

    So one way or the other, in a down market lasting several years high value properties lose out. Smart sellers would realize this and grab the best deal to get out of the market at the earliest possible time.

    If you are a serious buyer, you may make an offer based on similar rules of thumb.

    Because ultimately, there is no universal mathematical formula that determines price of properties. Hence, your own rule of thumb is important. The above scenario is based on an amalgamation of several real life cases in present market. If one particular seller sticks to old price or even enhances it in a generally down market, another seller somewhere would likely be ready to make a deal.

    Reply
    • Malik

      on   said 

      Good one, i agree with you that high value properties will get affected up to some extent and lower and middle value properties will remain same or will gain little bit, but it is difficult to define the term” high value properties” is it above one core, or 2 or 3 or 5 etc. so it further needs classification according to cities and societies to set a barrier to apply the above formula. its not easy for any investor to decide this.

      Reply
    • Hasan
      Many thanks for the useful insight
      PAKISTAN REALITY SECTOR HAS TWO ISSUES
      1- 5 MILLION BUYING RESTRICTION
      New tax laws have forbidden the non filers to buy property worth 5 MILLION PKR or more. So less than 1 percent people are filer in PAKISTAN. The buyers of property worth 5 million or more are just 1% whereas approximately 75% or more properties in PAKISTAN are worth more than 5 MILLION PKR.
      2- CRACKDOWN ON BLACK MONEY
      The massive crackdown on black money is on the way in PAKISTAN. The second and more tougher phase. This will reduce the investment in reality sector. Low investment is low property prices.
      PROPERTY PRICES ARE WHAT PEOPLE CAN PAY
      When non filers can’t buy high end properties so prices will fall sharply. But property worth less than 5 million will have high demand and will retain the prices.

      Reply
  10. Dear Sir,

    Sir i am regular reader for your all articles and also motivated from your words. But in real estate business different peoples have a different opinion about property. In Karachi I meet most of the brokers, mostly brokers said that the property prices will be boost up after election, law and order situation of the city is good since 2015. As we know that the shortage of house/flat in Karachi, the prices can not be declined specially in Karachi. What is your opinion and please also guide what is the best time to purchase home/flat for living purpose. As we are investor, we want to purchase it for living, however, black money deeply involve in real estate business and normal man can not afford 2bed dd for living purpose. It is very tough situation for common man and dream for a own home/flat.

    Reply
    • Nazir Ahmed
      The high property prices in Karachi are due to massive black money investment or China Cutting. Nothing to do with the population.
      Lahore has population of 11 million but area is 1772 square km. Whereas population of Karachi is 15 million but land area is 3500 square km. So Lahore has less land than Karachi.
      In Pakistan population has nothing to do with property prices but the scale of corruption.
      Karachi property prices are falling but the scale is different in different areas.
      For investors the time is not good unless they want to rent out properties.
      From 1 August after the end of Amnesty scheme and second round of crack down on black money you will see the massive property price fall.

      Reply
  11. Amir kk

    on   said 

    App nay kaha tha july may prices down hona start hoo jie gi. Abhi karachi may down hoona start nahi hoie. Na flats par. Na plots par.

    Kia abhi right time buy kar nay ka flat ya plot.

    Ya abhi wait karna sahi rahay ga. Please guide

    Reply
    • Amir KK
      Current amnesty scheme will end on 31 July 2018.
      So you will observe massive price fall from 1 August 2018.
      From 1 July 2018 non filers can’t buy property worth 5 million pkr or more.
      Price are falling so not the ideal time to buy property.
      The last quarter of the year is the time to buy property as chances are higher that property prices will bottom out by that time.

      Reply

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