Why property prices are crashing in Pakistan?
Property business has almost stopped in Pakistan, as property transactions are about 90% down of pre-budget level. Many realtors have told Ghar47 that there are no buyers and investors in the market but just the desperate sellers. Sellers are unable to find the buyers even after reducing the asking prices. Property prices in Pakistan are in free fall.
Sellers and buyers have their own views about falling property prices. According to the buyers property price crash is much needed as properties will be affordable. But the sellers & investors are worried as prices are crashing more than they can afford. Investors are calling the budget 2016-17 as bloodbath for Pakistan real estate sector.
Realtors, sellers & investors are blaming that rise in property taxes have halted the property transactions. This is not true as property taxes are very high in many countries worldwide, but prices are still rising. So billion dollar question is why property prices are falling in Pakistan? Let’s discuss the two major reasons behind Pakistan property crash.
BLACK MONEY was the #1 reason of sky-high property prices in Pakistan
One of the major reasons of sky high property prices in Pakistan was the unchecked inflow of black money in the real estate sector. It was the normal routine to buy properties in Pakistan with the black money. If we visit top housing schemes in Pakistan, we can easily see that more than 50% plots are empty. How prices can be sky-high when there is no genuine buyer? The sky high property prices were due to the black money invested in the property sector. But now FBR will ask the source of income, therefore real estate sector is not a safe haven for black money. As the inflow of black money has stopped, the property prices are in free fall.
FOREIGN REMITTANCES was the #2 reason of abnormally high property prices in Pakistan
The bitter reality in Pakistan is that investors never developed the housing schemes for the local Pakistanis. Investors & builders in Pakistan always build real estate projects for foreign Pakistanis with higher purchasing power. But foreign Pakistanis are now facing hard economic situations. In last fiscal year, foreign Pakistanis sent $20 billion remittances, which is a record in Pakistani history. But remittances have now decreased by 36%.
If we look at Europe, Italian Banks are in trouble. Breakup of single Euro currency is not far away as banks in Europe are just printing money. UK economy is falling apart due to Brexit. USA economy is living on drugs as it needs constant loans and money printing. Australian economy is declining due to less demand of raw materials from China. Canada and Middle Eastern Countries are literally on fire due to the record low oil prices. These all above countries are where most foreign Pakistanis live. When economy is down there, definitely we will get low remittances and less money will go to the real estate sector.
Future of Pakistan real estate sector
Property prices in Pakistan will continue to fall this year, stagnant in 2017, and will start to show gradual gains in 2018. In 2025, property prices will be back to the pre-budget 2016 level. Investors should keep in mind that era of overnight profits is over. We will see a mature property market in Pakistan where prices will increase at 5-15% annual rate. Real estate is still the best investment option in Pakistan, but people should invest for 3-5 years to get good returns.