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Property Prices Hammered as Interest Rate Increases to 13.25%

Property Prices Hammered as Interest Rate Increases to 13.25%:

The State Bank of Pakistan has increased the policy rate by 100 basis points. In other words interest rate has been increased from 12.25% to 13.25%. The interest rate is known as the best tool to control the rising inflation and depreciating currency. As per government, interest rate has been increased because of high crude oil price in the international market. This blog describe Property Prices Hammered as Interest Rate Increases to 13.25%.

INTEREST RATE vs PROPERTY PRICE:
Impact of interest rate increase on real estate prices:

Property prices decrease after the increase in interest rate. This is because banks give more profits on saving accounts. So people sell properties to deposit their money in banks. More properties than the buyers decrease the property demand so prices fall.

Impact of interest rate decrease on real estate prices:

Property prices increase after the decrease in interest rate. This is because banks give less profits on saving accounts. So people withdraw money from banks to invest in real estate sector. The increased demand for real estate results in increasing the property prices.

History of Pakistan interest rate changes and impacts on realty sector:

In recent century two property booms and crashes have been observed in Pakistan. First boom/crash was from 2003 to 2006 whereas second boom/crash was from 2013 to 2016. Both booms were the direct results of record low interest rates (7.5% and 5.75%). But both booms were followed by a property price crash when interest rates were increased.

Current Market Situation:

TRANSACTIONS have decreased greatly after the announcement of budget. In peak time 2016 there were approximately 200 daily file transfers but now just under 10. The trend is same in Bahria Town and other societies across Pakistan.

INVESTORS have abandoned the real estate sector due to many reasons. Firstly property prices are decreasing. Secondly banks are providing high profits on fixed deposits. Thirdly more taxes on sale of property up to 10 years.

SELLERS are very desperate to sell properties even at big loss. But unfortunately hard to find the buyers that have white money or can show the source of income. This is why properties are taking longer to sell at big discounts.

BUYERS are in the driving seat. They have plenty of options in the market at big discount rates. But buyers are not in hurry as they know that property prices have not bottomed out yet. Buyers waiting for the moment when property prices will be record low.

REALTORS are in worst condition. Since 2016, 40% realtors have closed their agencies. Big reputed real estate names are leaving market on daily basis due to record low income. Many realtors haven’t paid the rents. This is why that we can see estate agents protesting across Pakistan.

Future Price Trends:

The property prices in Pakistan peaked in 2016. Since then prices are in constant decline due to increase in property valuation rate by FBR, higher taxes on property transactions (Stamp Duty, Withholding tax & Capital Gain Tax) and low investments. Pakistan will see Dubai Style Property Price Crash where no prices have declined by 75% since 2008. By the end of the 2019 prices will be 25-40% lower as compared to start of 2019 as crash has gained momentum.

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20 Comments

  1. Qamar uz zaman

    on said  

    AoA, i am confuse that i have joint account in Meezan Bank with my son.Now both has to file the Return for the year 2018. who will show the Bank Account, me or my son. Can Anwaar Sahib guide me in this regard.

    Reply
  2. Abid Hussain

    on said  

    People who have purchased properties one year when dollar was of Rs.90 are already in loss by 80 percent. Where’s Naya Pakistan Government has started crushing every one . By keeping in view the situation who and how will be able to trade and if there will be no trade how the taxes will be generated. May Allah help the poor peoples of Pakistan like us(Elahi Ameen).

    Reply
  3. Muhammad azeem uddin

    on said  

    Dear Malik SB,

    Kindly explain about the impact of property prices as government increases the valuation rate.

    Reply
    • Muhammad Azeen ud Din
      The increase in FBR Property Valuation Rate will make real estate transactions expensive. So less transfer of properties. Which always results in slow down of market and property prices decrease.

      Reply
      • Ahmad

        on said  

        …but current situation is not like “Seller lose and Buyer win” scenario. Both seller and buyer loose from current situation, only government is winner (which is okay to an extent because Real estate needs to be regulated).
        From buyer point of view more taxes, disclosure of taxable money, less buying power (USD=Rs) really affect them, so situation probably will be same as before. Only difference is that property seems little cheap but still can’t afford it.

        Reply
  4. Kashif

    on said  

    This analysis highlight the overall scenario or situation of Pakistan property market but when we look at major cities like Karachi and Lahore overpopulated cities, people have shortage of apartment and if you can’t expect rise then decline is also not possible. You may consider price stagnant. However this will not go longer as high interest rate means overall decline in commercial activities whereas strategy should be vise versa so people invest more in manufacturing side as this Government is export friendly and loan from Commercial Bank will lend only when interest rate is low so this attract investor/manufacturer but no one will go for loan at 13 percent.

    Reply
    • Kashif
      Land are of Karachi is 3500 SQ KM but just 1/4 is developed why.
      Planning of mafia to sell property at high price.
      Totally busted.
      Secondly there is another issue.
      Property price is the purchasing power of people.
      Black money out.
      White money people have low purchasing power.
      So no one can stop property price crash.
      This is why dealers are protesting as no one is will to buy property that is 150% expensive than real value.

      Reply
  5. Muhammad azeem uddin

    on said  

    Dear sir,
    I have to know,many people who have buy land / plots at Karachi, northern by pass and near by area of Karachi where fazaia bungalows located, because they think that the CEPEC root prices will jump five times or even 10th times higher.

    But nowadays we are not hearing any news about CEPEC.

    Can you told me the price of land prices will also go down in bear future or due to CEPEC their will not any impact in these areas.

    We also hear from old people words property never go down, zameen khabi bhi neche nehi ati hai.

    Reply
  6. Could you please tell me How much should I pay for a 500 yard plot in dha phase 8 Khi and for s house in dha khi phase 6

    Reply

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