Pakistan reality sector without black money and foreign remittances
Pakistan reality market is stagnant due to low sale and purchase activities. Prices are tumbling in every major urban areas of Pakistan. Real estate transactions have reduced to record low, about 90% down from pre-budget level. Property prices in Pakistan are higher for masses even after price fall. But million dollar question is who the buyers of expensive properties in Pakistan were?
Purchasing power of local Pakistanis
House buying power of people on minimum wage
Monthly minimum wage in Pakistan = Rs. 14,000/-
Annual minimum wage in Pakistan = Rs. 168,000/-
People on minimum wage can buy property of worth = 5 years salary = 168000 x 5 = 8.4 Lac (International formula to calculate mortgage affordability)
Now we assume two people are working on minimum wage = 8.4 Lac x 2 = 16.8 Lac
Minimum wage salary couple can buy property of worth 16.8 Lac
With 16.8 Lac one can buy house in just suburban areas or villages
House buying power of people on average salary
Average monthly salary in Pakistan = Rs. 30,000/-
Average annual salary in Pakistan = Rs. 360,000/-
People on average salary can buy property of worth = 360000 x 5 = 18 LAC
Now we assume that both husband and wife are working = 18 Lac x 2 = 36 Lac
Couple on average salary can buy property of worth 36 Lac
Couple on average salary can just buy 2-3 Marla house in Pakistan
House buying power of professional people
Let’s calculate the buying power of doctors, engineers, lecturers and other top professionals
Average monthly salary of professionals in Pakistan = 1 Lac
Average annual salary of professionals in Pakistan = 1 Lac x 12 = 12 Lac
Professional people can buy property of worth = 12 Lac x 5 = 60 Lac
Now we assume two professionals in family = 60 Lac x 2 = 1.2 Crore
A professional couple in Pakistan can buy property of worth 1.2 Crore
Professional couple in Pakistan can buy just 5-7 Marla house in Pakistan
When purchasing power is so low who were buying expensive and large size properties in Pakistan?
Pakistani expatriates were the major buyers of real estate in Pakistan. This was due to the higher purchasing power of foreign Pakistanis. Most housing schemes and real estate developments in Pakistan were just built with the focus of foreign Pakistani buyers. Last year Pakistani expatriates sent record $20 billion remittances. Majority of this money ended in real estate sector.
People with black money in Pakistan
Other buyers of expensive and large size properties in Pakistan were the people with black money. In history of Pakistan up to 1 July 2016, source of income was never asked. Due to the absence of law that requires the source of income, black money easily entered into the reality sector of Pakistan. Expensive and large properties easily found buyers with black money.
Reasons of property price fall in Pakistan
Foreign Pakistanis are losing purchasing power
Foreign Pakistanis are fast losing the purchasing power. Pakistan recieves remittances from USA, UK, Australia, UK, Saudi Arabia and Middle Eastern Countries. British, American and Canadian economies are on drugs in form of loans. Saudi Arabian and Middle Eastern economies are shattering due to record low oil prices. Australian economy is down due to low raw materials demand from China. In the face of declining purchasing power of foreign Pakistanis, real estate sector is stagnant and prices are falling as no buyer in the Market.
Black money is flushed out of reality sector
According to property tax amendments 2016, FBR is empowered to ask the source of income. Now black money cannot be parked in reality sector. In the absence of black money, reality sector is stagnant. Prices of expensive and large properties are falling like dominoes. This clearly shows that high end property market in Pakistan was thriving on black money as without it we can see price fall everywhere.
Amnesty scheme for reality sector
There are rumors that government is planning to offer real estate amnesty scheme for limited time period. In this case people with black money can whiten it by paying 3% taxes. There are two future scenarios;
Amnesty scheme is offered
Amnesty scheme is not offered
In first case if amnesty scheme is offered, people will flood the market with properties. Due to more properties than buyers, property prices will fall. In second case, if amnesty scheme in not offered, property prices will keep falling to the point where people with white money can afford to buy property.
What is in store for Pakistan reality sector?
Buyers know that property prices are falling and are hesitant to put solid offers. Sellers are desperate to sell properties to minimize losses. Property prices also depend on the holding power of sellers. Property prices will see big nose dive when sellers will run out of patience.
Pakistan reality sector has entered new age of maturity. The era of overnight gains is over. Prices will be more stable and gains will be like 5-15% per year. Now property prices in Pakistan will reflect the purchasing power of genuine buyers with white money.
Some good investment options are still available
Real estate projects on installments are good buy. Average duration of installments in Pakistan is 3 years. When you book some property on installments, you have to pay in installments rather than lump sum. Second advantage is that in most cases you pay less but after 3 years property worth is more.