PROPERTY PRICES CRASH IN PAKISTAN
Pakistan Property was generally considered as the best performing asset class due to quick gains. But things have changed now as real estate prices are in decline since 2016. The realty sector has lost its shine. This blog describes the main factors for Property Prices Crash in Pakistan.
REASONS OF PROPERTY PRICES CRASH IN PAKISTAN
70% economy of Pakistan was black economy, but now government has zero tolerance for black money. Everyone has to be filer and show the source of income. Therefore Pakistani economy is in decline due to the readjustment. At the same time Pakistani currency has devalued against the mighty dollar. Property price has direct relation with the economy. Economic decline results in decreasing the buying power so property prices also decrease and vice versa. Economic Downturn is the first major reason of the property prices crash in Pakistan.
High Interest Rate
Interest rate has direct impact on property prices. The rise in interest rate decreases the property prices whereas decline in interest rate increases the property prices. This is because when interest rate increases banks give more profits on fixed deposits. So people sell properties and deposit money in banks to earn high profits. But when interest rate decreases people start buying properties which increases the demand and prices also increase. Currently interest rate is record high in Pakistan so people are selling properties to earn high profits from banks. Therefore second reason of Property Prices Crash in Pakistan is the high interest rate.
New Property Tax Laws
Pakistan Budget 2019-20 was the game changer for real estate sector due to property tax amendments. Firstly people have to be filers to buy properties. Secondly seller has to hold constructed property for 4 years and plot for 8 years to avoid higher Capital Gain Tax. Thirdly FBR has increased property valuation rates up to 85% of the market value due to which volume of transactions has decreased. Investors have lost interest in realty sector due to new property tax amendments. The low investment has decreased the property prices. Therefore third major reason of property prices crash in Pakistan is new property tax laws.
Benami Assets Confiscation
Realty sector was the safe haven to park the black money in Pakistan. People hoarded ill-gotten wealth through Benami Assets. But government has introduced the laws to confiscate the Benami Assets. FBR has zero tolerance policy for black money and Benami Assets. As no one can hide the ill-gotten wealth so real estate investments have decreased. The low property demand has lead to property prices decline. Therefore fourth reason of property prices crash in Pakistan is the Benami Assets Confiscation.
CURRENT PROPERTY MARKET CONDITION IN PAKISTAN
Real estate transactions are record low now. Once there were 180-200 daily file transfers only in DHA Lahore but now the number has decreased to just less than 10. This clearly shows that property market has not only crashed but investors have also lost interest.
Property transactions are the bread and butter of estate agents. Many estate agents have closed their agencies as they are unable to pay the rents. Many agents who turned to be investors have sustained huge losses. Now many realtors are turning to other businesses.
Sellers are in worst position especially those who bought properties at peak prices. They are desperate to sell properties even at loss. But it is hard to find serious buyer with white money in the market. Now properties are staying longer in the market before exchanging hands.
Buyers are on the driving seat as there are more properties than the buyers. They know that property prices have crashed in Pakistan. Buyers are in no hurry and are waiting for the prices to bottom out. They are also in touch with the market and are offering very low bids to get big discounts.
PROPERTY PRICE TRENDS IN PAKISTAN
Property prices have already declined by 40% since 2016. But estate agents believe that biggest price crash has just started as they forecast another 40-50% property price crash. As per the current circumstances property prices in Pakistan will crash by 70% from peak of 2016. This is not a new trend as Dubai Property Prices have crashed by 75% since 2008. Property prices will bottom out within a year.
FUTURE OF PAKISTAN REALTY SECTOR
Pakistan real estate sector has changed forever. Firstly it is impossible to park black money in realty sector so speculation will end. Secondly property will be only for living or commercial uses rather than the day trading as was the routine in old days. Thirdly abnormal property prices will be history as future price gains will be gradual. Fourthly middle class people will be able to own homes in Pakistan.