Benefits and Drawbacks of Property Price Increase
Real estate prices increase when economy booms but decrease due to the slowdown of the economy. This is because booming economy creates good paying jobs and purchasing power increases. On the other hand slowdown of the economy decreases the purchasing power and property prices also crash. People hail rising home prices but it is not without disadvantages. This blog describes the Benefits and Drawbacks of Property Price Increase.
Advantages of the Rising House Price:
Jobs Creations
Real estate transactions are the bread and butter for the realtors. The high property prices means more income for the estate agents. But high property prices also result in the construction boom as more and more investors start the construction of homes. This creates millions of jobs as real estate sector is linked to 50 small industries. So the first benefit of the rising real estate prices is the job creation.
Increase in Revenue
On every real estate transaction, the government collects the taxes. In addition to that there are also annual property taxes depending on the price and size of the property. Real estate sector is a great contributor of the national GDP in advanced countries. The tax collection is always fixes like certain percentage of the property value. Greater the property price, higher will be the tax collection. So the second benefit of the rising home price is the more revenue collection.
Wealth of the Landlords Increases
Investing in real estate sector is generally considered very profitable. Most self-made billionaires gained the wealth by investing in real estate. This is because real estate performs better than other investments. The rise in property price increases the wealth of the landlords. This increase encourages the people to own properties as this is the quickest way to become millionaire. So the third advantage of high property prices is that wealth of the home owner increases.
Disadvantages of the Rising House Price:
Risk of the Economic Meltdown
The first disadvantage of rising house price is the slowdown of the economy. The high prices make homes un-affordable and less people apply for the mortgages and bank loans as they have to save more for deposits. Another factor is that every housing boom is followed by a crash due to which foreclosures increase. All these factors slowdown the economy while kick starting the recession.
Home Ownership Declines
The second disadvantage is the decline in home ownership. Some people buy homes with cash whereas others with mortgages. In both cases when property price increases people can’t afford to buy homes. This is because they need more cash to buy homes and also need to save more money for the deposits. Therefore home ownership decreases with the rise of property price.
Hard to Pay the Rents
House rent depends on its value. When house price is affordable, the rents are also affordable. But when house price is high so are the rents. Most people spend up to fifty percent of their monthly incomes on rents. Due to increase in house price, monthly rents also increase. This makes the rent payment difficult for many people. So another disadvantage of high house price is that people struggle to pay the rents.
Jamshed
on said
Anwaar Ul Islam
Though this is a temporary move but this will encourage the black money holders to make more money by illegal means and would start the same sort of business. I think IK has accepted his defeat and has failed to run this country under rules and regulations . FATF is not a threat for the government any more due to global lockdown. Illegal and black money would continue to prevail in this country and honest and innocent people should think to move to some other countries which IK dreamed to follow.
ANWAAR UL ISLAM
on said
Jamshed
Yes totally a timely measure or can be said as hard pill to save the poor from starvation.
BUT
This will not uplift the economy.
REASON #1
This relaxation is just for 2020
REASON #2
People will take this as a trap as in 2021 investors will be asked to pay the fines in form of taxes to be filers
REASON #3
FBR has already made a law that states that people with black money if invest will have to be filer in 45 days
REASON #4
Global economy is tanking and will face a bigger crisis than 2008. Real estate sector is crashing world wide but will see a boom in Pakistan? No way
REASON #5
Pakistani expatriates in Europe, US, Canada, Australia and MID-EAST are loosing jobs. Will they be able to buy real estate.
Clearly points that this is a temporary move;
https://www.pakistantoday.com.pk/2020/04/03/economy-stimulation-pm-gives-tax-relief-construction-sector/
American housing / mortgage crisis in making;
https://www.zerohedge.com/economics/here-comes-next-crisis-30-all-mortgages-will-default-biggest-wave-delinquencies-history
Dubai Property Price Crash New Wave;
https://www.bignewsnetwork.com/news/264482862/dubai-property-crash-getting-a-boost-from-covid-19
UK Mortgage Crisis;
https://www.bloomberg.com/news/articles/2020-04-01/u-k-lenders-confront-biggest-mortgage-test-since-2008-crash
UK & US are hitting the level of great depression 1929-33;
https://www.theguardian.com/world/2020/apr/03/coronavirus-uk-business-activity-plunges-to-lowest-ebb-since-records-began
ANWAAR UL ISLAM
on said
Jamshed
Imran Khan as a leader is always surrounded by the mafia people who work hard to trash his reputation from the day one;
Sami Ibrahim has clearly pointed towards this issue and one year 2020 relief for the black money investors to save the sinking ship that will sink ultimately;
https://www.youtube.com/watch?v=2yKkdboXdm8
Jamshed
on said
Anwaar Ul Islam
Imran Khan has invited the black money holders to invest in the real estate. What are your views . Please share
ANWAAR UL ISLAM
on said
Jamshed
Interesting development but the question is who will invest in real estate or construction sector.
If on one hand the main investors are the black money holders then on other hand are the expatriates who are loosing jobs on daily basis.
It looks like a temporary move to absorb the economic effects of corona-virus.
Nazeer
on said
The days are over that one will think to speculate price in Pakistan real estate. Soon the Government builds affordable housing all over the country. Wait and see.
ANWAAR UL ISLAM
on said
Nazeer
Affordable housing is the need of the hour.
Muhammad azeem uddin
on said
Dear sir,
You have highlight very well regarding property market.
Last few days ago I have read in news paper article that government planning to reduce FBR value and allow buyers to invest money on real estate not to ask source of income.
This will attract foreign investors and belongs this 50 other industry will start running.
At this moment real estate sector is stagnant.
this is very good news for Pakistan people as they got more job, as well those investor are desperate can be able make good money , and hope their property prices again become double or triple value , according to article 5 marla home cost right now at karachi Rs 1.2 crore , 500 square yard bungalow cost 8 crore.
So after few months the prices reaches 5 marla Rs 2.4 crore and 500 sq yard bungalow Rs 16 crore. This will be minimum value.
Anwar bhai Would you agree about the article of news paper ??
I think government is taking very good decision because at this time DOLLAR reaches PKR 171.
Due to real estate boom government can be able to keep it PKR 150 again.
ANWAAR UL ISLAM
on said
Muhammad Azeem Uddin
Real estate boom in Pakistan?
Dubai Property Prices have collapsed by 40% since the out break of Corona-virus.
People have money to invest in Pakistan real estate?
FATF will blacklist Pakistan if we don’t control the easy flow of black money.
A good read for you;
https://www.dawn.com/news/1536677