Current situation of Pakistan property market
Pakistan real estate market in Q3
Pakistan real estate market is in decline as property transactions are record low. Property prices are falling in almost all major cities and areas. The third quarter, Q3 is almost over and now we can see the real effects of property tax amendments. There are no buyers in the market as most people are on watch & see mood and want the prices to be bottomed out.
Effects of Property Tax Amendments 2016
When amendments in property taxes were made, investors & realtors were rejoicing and congratulating each other as the new amendments were blessing for them. The real buyers were very upset due to the market rigging as everyone was trying to paint a rosy picture. It was only Ghar47 that described about the real storm. The regular readers know our predictions:
Property transactions will decline
Property prices will fall
Investors will sustain huge losses
Realtors will see decline in business & revenue
Real home hunters will get cheap deals due to price fall
Property prices are not falling due to increase in taxes
Many people are of the view that property prices are falling due to the increase in property taxes which is totally rubbish. Property taxes are way higher in Europe, Canada, USA and Australia but prices are still rising. We should know that taxes have little effects on real estate sector as most taxes are subject to conditions and there are always many exemptions from taxes.
Property prices are falling as FBR has stopped inflow of black money
Everyone is arguing about price crash but first we should know that why property prices were rising so fast and at abnormal rate. The bitter reality is that Pakistan real estate sector was the biggest safe haven for parking black money. Black money was the major cause of abnormal rise in property prices in Pakistan. Middle-class people were leaving the hope of buying decent homes but on the other hand people with black money were thriving.
Now FBR is asking the source of income and investors with black money are no more willing to invest in the real estate sector. This is why prices are falling in Pakistan. Just imagine the amount of black money in real estate sector that caused this mess at first place and what is unfolding will shock the country. The biggest property fall in history of Pakistan is coming.
Property prices are falling as STOCKS ARE RISING – Stock market & property market are deadly enemies in Pakistan
Real estate sector and stocks are best hedges against inflation and are also the best option for investments. Very few people have noticed that in Pakistan stocks / shares were down in last 4 years but real estate sector was booming. Now real estate sector is in decline but PAKISTAN STOCK MARKET is booming. This clearly shows that capital has transferred from real estate sector to stock exchange. I have met many realtors and real estate investors who have diverted their investments from real estate sector to stock exchange.
Majority of Pakistanis have welcomed the property tax amendments
This is the 21st century where country’s economy is measured by the performance of STOCK EXCHANGE. Pakistan stock exchange is among the top 5 best performing stock exchanges of the world. Pakistan stock exchange is even better performing than Chinese stock exchange. For the people who think government will reverse property tax measures are living in fool’s paradise as government is being praised for boom in Pakistan Stock Exchange and crash in Real Estate sector. People are praising government’s initiatives to stop black money in real estate sector. People are praising the government to bring real estate sector to tax network. People are praising the government’s move to bring down house price to affordable level. Majority of Pakistanis have welcomed the government policy as majority of Pakistanis are the real home buyers not investors.
Current property market situation
First everyone was denying that property prices are falling. But now at the end of Q3 price fall can be clearly seen. In DHA Phase 9 Prism Lahore prices are approximately 15% down. Prices are 20% down in DHA Karachi and prices are approximately 17% down in DHA Islamabad. Similarly in other top housing schemes prices are falling. Biggest price fall is seen in the areas where day trading was very high. Property business is 80% down from its peak in June 2016. Almost no buyer in the market even after reducing the asking price by 30% as is the case in DHA Karachi. Price fall will be more evident in November and December.
Forecast of Pakistan real estate industry
We will see the biggest property price fall in our national history, as prices will fall 50% or more. This property crash is worse than property crash of 2005-2009 as at that time people withdrew money to invest in Dubai and USA. But at that time inflow of black money was not stopped. Now the main booster of Pakistan real estate sector is flushed out, THE BLACK MONEY. So price fall will be more this time than 2005.
The price fall will depend on the areas and type of properties. The areas where empty plots are in large numbers and are used for day trading, price fall will be more. On the other hand, areas with more apartments / houses than plots will see lower price fall. Apartments / Houses are generally more resilient to price crash as compared to plots, as labor cost and material prices soothe the effects of price crash. Basically land price falls but construction cost remains the same.
Worldwide housing sector works on fundamental of price to income ratio. Affordable house price to income ratio is 5:1, but it was 20:1 in Pakistan. So house price correction was long due. This price fall will continue as long as house prices are affordable and people once again start buying properties. This will happen from both ends as prices will keep falling and salaries will keep rising to the point where prices are affordable.
Prices will bottom out next year and will be stagnant for many years to come. This will definitely change the real estate sector forever. Now real estate sector is not a casino, but a long term investment hotspot. Pakistan real estate sector will still return profits but for 3-5 years investments. Renting out houses will be a top investment opportunity with 5% rental yield per annum. The era of overnight price rise is over as now RESIDENTIAL PROPERTIES IN PAKISTAN ARE FOR LIVING NOT FOR SATTA.