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Property market stagnation is due to large size properties

Property market stagnation is due to large size properties
Pakistan property market stagnation

Pakistan property market is stagnant at the moment. According to real estate experts its due to the new property tax amendments. But there is another cause of property market stagnation that we are ignoring, PURCHASING POWER OF BUYERS. As we all know that black money is flushed out of property sector by FBR, so only people with white money can buy properties. People with white money have low purchasing power, so prices are falling. Small properties that have low prices are selling like hot cakes. Large size luxury properties have no buyers in Pakistan and prices are falling like dominoes.

Why we have large houses in Pakistan?

No luxury taxes in Pakistan

There was no law in Pakistan to save the valuable land. There was no luxury tax in Pakistan on large size houses. Karachi, Lahore and Islamabad have houses built on large plots like 1 acre. Even with the rising population and shortage of land, we have not ceased to build large houses.

No check on source of income

Historically, there were no strict laws that checked the source of income to buy houses in Pakistan. This is why that we find large houses in Pakistan. Real estate was the best way to whiten the black money. So, people with black money were able to afford large size properties in Pakistan.

But things are now moving in the right direction

FBR is now asking the source of income

Luxury property prices are falling like dominoes. This is just after the property tax amendments 2016. Now FBR is asking the source of income and black money cannot be parked in the real estate sector. Genuine buyers with white money have low purchasing power and prefer small size properties. This is why house price and size are decreasing.

Construction tax is imposed by FBR

Secondly, FBR has imposed approximately 5% construction tax on map approval, so larger the property more the construction tax. This law will definitely limit the house size. Now people prefer small size houses as small properties have lower taxes as compared to large size properties.

House sizes are shrinking due to high maintenance costs

House sizes in Pakistan are also shrinking due to the maintenance costs. Large houses have higher maintenance costs than the smaller houses. In Pakistan, houses bigger than 5 Marla need maids & servants for maintenance. Maintenance costs are increasing due to rising wages, so house sizes are shrinking.

We should discourage large size houses construction to end real estate sector stagnation

Builders should fully understand that black money has been blocked so there are no buyers for luxury / large size properties. Prices of large size properties are falling as people with white money have low purchasing power. Builders should focus on small properties that are affordable for genuine buyers. There are many unsold projects in top cities of Pakistan as people with white money cannot buy these properties. So we should understand that stagnation of real estate sector will end only if we start building cheap and small houses.

Recommended:
NA approves tax amnesty scheme for real estate sector 30-11-2016

(29) Comments

  1. Rizwan

    on   said 

    Dear ghar47
    Geo news is breaking news dat amnesty has been agreed bw ishaq dar and broker mafia…on payment of 3 % tax the source of income will not be asked by the fbr and transactions before june 2016 are also safe and will not be probed…while u pay 3% and fbr wil not ask source of funds ….plz luk in detail in dis news and reply with ur analysis…just read on geonews twitter their breaking news

    Reply
    • Rizwan
      Yes there are news and GEO twitter is full of it. Its so early to analyse things as first we should wait for the final outcome. What I can see is that amnesty scheme will be another blow to real estate sector as people trapped in real estate sector will sell properties and will invest in STOCKS. Taxes are not going back.
      What I see is that realtors are worried about old transactions as they have to pay huge taxes. First old transactions before June 2016 were subjected to 5% tax now it will be 3%.
      Prices will only rise if government take back taxes on present or future transactions.

      This amnesty is more like clearing the old transactions before property tax amendments June 2016.
      Things will be clear in couple of days.
      But one thing is for sure, this is election year as GE is in 2018, government need huge taxes so that government can spend on different projects.

      ISHAQ DAR Sb. is a great negotiator and once again realtors will see no advantage on their side as government is firm to skim the reality sector as it is biggest tax heaven.

      Reply
  2. YOUSUF LODHI

    on   said 

    I REALLY WONDER, WHAT IS GOING TO HAPPEN WITH REGARD TO PROPERTY SALE/PURCHASE NEXT YEAR WHEN PRESENT FBR VALUATION TABLE WILL BE DOUBLED.I.E. PRESENTLY A 500 YARD OPEN PLOT IN DHA KARACHI, PHASE 8 IS VALUED AT RS. 1 CRORE ON FBR TABLE…..IT WILL BE 2 CRORE EFFECTIVE 01 JULY 2017 AND 3 CRORE EFFECTIVE 01 JULY 2018.

    HOW THE HELL ARE WE GOING TO FIND BUYERS WITH A WHITE MONEY AMOUNT OF RS. 2 CRORE AND 3 CRORE RESPECTIVELY ????? THERE IS GOING TO BE A DISASTER IN UP-COMING DAYS

    Reply
    • YOUSUF LODHI
      Stunning analysis and this is based on reality
      Aim of FBR is to bring the property rates to actual market rate.
      So this will take 3-4 years but all taxes will be subjected to MARKET PRICE OF PROPERTIES
      WHAT I SEE IN FUTURE
      Property prices will fall to the level where genuine buyers with white money can afford properties.
      Property prices will keep falling
      No buyer of large size expensive properties
      SELLERS / INVESTORS WILL SUSTAIN HUGE LOSSES

      EVERYONE SHOULD KNOW ONE FACT / REALITY
      PAKISTAN PROPERTY MARKET WAS RUNNING ON BLACK MONEY SOLELY
      IN the absence of black money, property prices are falling
      NO SALE PURCHASE AT THE MOMENT
      AS PEOPLE WITH WHITE MONEY CANNOT AFFORD EXPENSIVE PROPERTIES
      FUTURE MARKET WILL BE MARKET LESS THAN 1 CRORE

      SAD REALITY FOR OWNER OF EXPENSIVE PROEPRTIES

      Reply
      • rizwan

        on   said 

        GHAR47 STILL HOPEFULL THAT IT FALLS AS STILL PPL R NOT BUDGING FROM THEIR ORIGINAL PRICES…STILL WAITING…MANY PPL R THINKING THAT MARKET WILL RISE AS STILL AMNESTY IS ON THE TABLE …. LETS HOPE EVERYTHING GOES WELL AND MARKET CORRECTION TAKES PLACE SO THAT EVERYONE CAN BUY HOMES

        Reply
        • Rizwan
          There will be no amnesty due to 2 main reasons
          1- NO TAX RETURN SYSTEM IN PAKISTAN
          In Pakistan we have no efficient tax return system. Can government return all taxes which were collected according to property tax amendments 2016? So taxes are not rolling back.
          2- IMF PROBLEM
          Government has assured IMF that no amnesty will be offered and government want to assure IMF that Pakistan can pay back all taxes easily. This is why Haroon Akhtar Khan refused to give audience to estate agents who pretested in Lahore on OCT 24 & IN KARACHI ON 27 OCT.

          Price are falling and will keep falling
          Its just the game of nerves
          Who dares he wins.

          We will see good price trends (down-side again) from next month.

          In Lahore, one dealer told me that approximately zero sale and purchase in Market.

          Prices of DHA PHASE 5 LAHORE (THE MOST EXPENSIVE PHASE OF DHA LAHORE LIKE DHA 8 KARACHI) are constantly falling.
          More than 30% price correction and still no buyer.

          Reply
          • Rizwan
            They tried their best but failed utterly.
            Why?
            Government has collected taxes according to new FBR rates.
            Government cannot roll back taxes now as process is rolling fast forward.
            Any amendments will be made now in next budget 2017-2018.

            Within 2-3 months we will see big rally in real estate sector where sale and purchase will hit record high as black money will be out, prices will be affordable for masses.

    • rizwan

      on   said 

      YOUSAF BHAI YOU ARE ABSOLUETELY RIGHT AS COMING DAYS IS EXPECTED TO BE A BLOOD BATH FOR PAKISTAN PROPERTY SPECIALLY HIGHLY INFLATED AREAS LIKE DHA PHASE 8 …CAN U PLZ ELABORATE WHAT ARE THE CURRENT RATES OF PLOTS IN DHA PH8 500 YARDS CONSTRUCTION ZONE AND NON CONSTRUCTION ZONE??

      Reply
        • rizwan

          on   said 

          dear ghar47
          yes dha karachi did crash but it is dha phase 9 ……..while dha phase 8 ppl r not budging although we r hearing that not much activity in market but as they say na sell kerny ko sasta koi tayar hai n na khareednay ko koi tayar hai….market is stagnant only little movement….but in phase9 dha the 500 yrd sector 17 plot fell from 125 lac to 65 lac and no back up again to 85 lac…so this trend i do not understand of y it is going up gain

          Reply
  3. YOUSUF LODHI

    on   said 

    I HAVE BEEN DOING HOUSE CONSTRUCTION BUSINESS FOR QUITE SOMETIME IN DHA KARACHI. I AGREE WITH YOU THAT PRICES ARE FALLING IN POSH AREAS.

    BUT WHAT ABOUT AREAS WHICH COME UNDER CATEGORY 4 AND 5 OF FBR VALUATION TABLE ???? WOULD THEY ALSO HAVE NO IMPACT OF PRICE FALL ? DO YOU SUGGEST THAT I SHOULD START WORKING ON 120 YARD HOUSES IN AREAS UNDER CATEGORY 4 AND 5 WHICH MAY NOT FACE FALL IN PRICE

    Reply
    • YOUSUF LODHI
      Stunning analysis and many thanks for sharing your first hand experience of on ground events like price fall
      120 SQY is best for building houses and selling it.
      REASON?
      YES
      Due to no WHT properties worth less than 40 LAC are hot cake for buyers and investors (40 LAC According to FBR not according to market value)

      BLACK MONEY IS OUT OF MARKET / REALITY SECTOR
      Genuine buyers with white money have low purchasing power
      Real buyers want houses worth less than 1 CRORE RUPEES

      Cheaper the property more the customers

      Prices of AREAS UNDER CATEGORY 4 & 5 will not see fall. (Either stagnant or some gains)

      Reply
  4. iftikhar Ahmed

    on   said 

    bit off the topic but could you suggest any remedy for people like me who are stuck with the builder . I have booked a flat in karachi in 2007 and its 2016 only structure is built no sign of completion . I have paid full cash ammount and now builder is asking for loan amount to be paid in instalment . I am living abroad tried ABAD no reply from their side . any suggestion on this .

    thanks
    Iftikhar

    Reply
    • Iftikhar Ahmed
      There are many recorded events where projects are not delivered on the time. Every builder is not scam or fraud
      DELAY OF PROJECTS HAVE THE FOLLOWING REASONS

      LACK OF FUNDS DUE TO LOW BOOKING VOLUME
      DEVELOPERS COULD NOT GET PLANNING APPROVALS
      FRAUDS AND SCAMS

      Supreme court is addressing these issues like China Cutting and land scams

      You can handle it in two ways.
      Firstly, you should complain to LOCAL DEVELOPMENT AUTHORITY
      Secondly, put a case against builder or developers.

      Hope for best, good days ahead
      Thing are moving in the right direction

      Reply

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