Top 5 Reasons of Pakistan Real Estate Market Crash
Real estate sector is generally considered as the safe heaven to park black money worldwide. It was same in Pakistan few years back. But things started changing when new real estate laws were introduced in Budget 2016-17. New laws increased the taxes on property transactions, property rates were revised and black money flow into reality sector was blocked. This blog outlines the top 5 reasons of Pakistan real estate market crash.
1-Crackdown on Black Money
The first major reason of property price fall in Pakistan is the ruthless accountability. There is zero tolerance for black money. People who have bought properties with black money are acquired about the source of income. Many politicians have been disqualified because they couldn’t show the money trail. As people with black money are afraid to buy property so investment is low in real estate sector. This has caused the property price fall nationwide.
2-Non-Filer property buying restriction
The government has maintained the property buying restrictions for the non filers in Mini Budget 2018-19. This has collapsed the luxury property market as its very hard to find the filer buyers. Secondly Overseas Pakistanis have to produce a certificate from the banks to prove that money was sent from abroad just 60 days prior to property registration. These 2 laws have decreased the investment in reality sector and prices are falling nationwide.
3-Naya Pakistan Housing Scheme
Pakistan needs 12 million new homes to solve the housing crisis whereas we are just building 200,000 housing units. The government’s plan to build 5 million affordable homes is hailed by every Pakistani. These houses are available on installments. People who were willing to buy properties in private housing schemes are now booking affordable homes. This development has reduced the volume of investment in private housing societies and real estate projects. Therefore we can see real estate price decline across Pakistan.
4-Increase in Interest Rate
The rise in interest rate leads to property price decline and vice versa. By observing the two real estate booms in Pakistan (first boom 2003-2006 & second boom 2013-2016) we can see the major impact of interest rates on property prices. The first property boom started with the decrease of interest rate to 7%. Property prices crashed when interest rate was increased to 9%. During the second property boom prices peaked in 2016 when interest rate was historic low at 5.75% and started declining with the rise of interest rate. Now interest rate stands at 8.5%. Another crash is just on the corner as people are depositing money in banks to earn profits instead of investing in real estate sector.
5-Illegal Housing Schemes
One of the reasons of Pakistan real estate market crash is the crackdown of NAB against illegal housing schemes. Many Pakistanis have lost their life savings due to property scams. But things have changed as new government has started to demolish the illegal constructions. At the same time many housing schemes have been sealed by NAB in recent pass. According to NAB there are 6,000 illegal housing schemes or societies in Pakistan. This has also reduced the investment in reality sector as people are afraid to buy properties in housing schemes. The ultimate result is property price crash.
Property Price Forecast
Pakistan property prices are 35% down from peak of 2016. Still another 30-40% price crash is expected as prices are still out of reach of most people. Many people think that such a massive price crash is impossible. They should know what has happened in Dubai. Property prices in Dubai are now AED 600 per sq ft whereas they were AED 2200 per sq ft in 2008. Property prices in Dubai are just 25% of what they were in 2008 because of new international laws that have blocked the black money investment. We will see similar property price trends in Pakistan.