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Pakistan real estate booms and busts

Pakistan real estate booms and busts

Since the dawn of 21st century, real estate sector has played a prominent role in our national economy. Pakistan has witnessed two property booms and busts since 2000. Let’s discuss the reasons behind these two property booms and busts.

First property boom in Pakistan 2003-2005

Reasons of property price rise 2003-2005

1-Interest rate was record low; 7.5% in history of Pakistan. People just withdrew money from banks and invested in property sector and prices boomed.

2-Due to security issues in USA after 9/11, Pakistanis returned back with their capital. They invested money in property sector and prices boomed.

3-Pakistan got massive NATO AID in Afghan War. With that money government started many subsidy schemes and infrastructure projects. Nearly every business flourished and people got jobs. Ultimately lot of this newly created money ended in real estate sector and property prices boomed.

Reasons of property price fall 2005

1-Better security condition in USA and people moved back with their capital

2- Bank interest rate was raised to 9% due to which investors sold out their properties and deposited capital in banks. Properties outnumbered the buyers and prices crashed.

Second property boom in Pakistan 20013-2016

Reasons of property price rise 2013-2016

1-Constant decrease in interest rate; now stands at 5.75% since May 2016

2-Rise is foreign remittances, record high $20 billion

3-Massive infrastructure developments

4-Stocks were low so people invested in property sector

5-Due to electricity shortage no other industry was performing as well as property sector with lucrative returns

Reasons of property price fall Since July 2016

1-Stocks are booming as Pakistan Stock Exchange is one of 5 best performing stocks in the world

2- High taxes on early sale of property after property tax amendments 2016

3-New property valuation rates by FBR

5-Blockage of black money from reality sector as FBR is asking the source of income.

Pakistan property market now after tax amnesty scheme

Pakistan property market is stagnant at the moment. Launch of new real estate projects is record low as compared to last year. Estate agents are reporting some rise in property transactions but we should know that property transactions are always high in December as most foreign Pakistanis visit home land and invest in properties. Couple of months will show the real direction of property market as the effects of amnesty scheme will be clear.

Recommended:
FBR Property Valuation Rates

(27) Comments

  1. YOUSUF LODHI

    on   said 

    AS FAR AS KARACHI IS CONCERNED, I do not agree with GHAR47 (with due respect) that prices are down or stagnant. It is the other way generally and low cost areas particularly……prices are rising contantly

    Reply
    • YOUSUF LODHI
      Many thanks for on ground reporting
      I always said that small and cheap properties are strong buy
      This is why Gwadar Properties are selling like hot cakes due to low prices.

      Yes sellers are increasing asking prices. But what is the price trend on which properties are selling.

      Reply
      • YOUSUF LODHI

        on   said 

        Through out Karachi, property prices are increasing. Not many deals are being confirmed particularly in DHA Phase-8, DHA City, Bahria town and other low cost areas

        I could recall your blog soon after announcement of tax amnesty scheme that prices of property will be sky high…..and that is what is happening at least in Karachi

        Reply
        • YOUSUF LODHI
          But property market is almost dead in DHA Lahore
          And not much activities in DHA Islamabad

          Bahria has recently launched new phase in Lahore but no excitement from investors

          Good to see at-least DHA Karachi is best performing

          Reply
  2. Dr. Ismail

    on   said 

    Dear Ghar47,

    Plot prices are still on the rise. I have been looking DHA City karachi real estate market since beginning of this month. Please guide if the prices will go up next year.

    Thanks

    Reply
  3. Dear Ghar47,

    I want to buy plot in Islamabad. I have two choices, Gulberg Isb and I-16 Isb.

    Can you recommend where to buy and whats its future in coming days or wait.

    Is it any beneficial to purchase plot in CDA sector like i-16 or i-14.

    Thanks in anticipation.

    Reply
    • Ali
      Both are good but long term investments
      1-16 Islamabad is good due to on route of CPEC & also close to New Islamabad Airport
      Gulberg Islamabad is located on Islamabad Expressway
      Will give good returns by 2020, so long term investments

      Reply
  4. muhamamd azeem uddin

    on   said 

    I think prices will come down soon and pakistan will not become heaven for black money ,, we are waiting any if the government will come but it must do to crack black money , otherwise government can not achieve the tax collection target.The industry is not capable to survive further taxes because mostly have closed the factory and balance are running just for their survival. if government will put taxes on importers then the raw material prices will high and our local industry can not compete from our neighbour

    Reply
    • Muhammad Azeem Uddin
      Things are moving in the right direction, Its just we who cannot feel the change.
      In shaa ALLAH things will be crystal clear for PAK NATION and true patriot in few months.
      Hope for best

      Reply
      • Hasan

        on   said 

        Today’s Dawn News on Business Page:

        ‘Senate Committee Clears Benami Transactions Bill 2016’

        http://epaper.dawn.com/DetailNews.php?StoryText=30_12_2016_010_009

        This is what I mean by Pakistan & India closely following each other. The same tide is flowing on both sides of Wagah border with very few differences. In this case even the wording of the bill is almost the same, only with change of heading to state either ‘Pakistan’ or ‘India’.

        Black money is being chased. It’s a matter of (short) time that property prices shall start conforming to actual & legal demand & supply patterns …and not be 80-90% dictated by unlawful, unaccounted for money.

        As corrupt as the system is but it is still reforming, in bits & pieces. I don’t see how property market could remain on an artificial high for too long, given that pressure is building up on negative forces from all around …be it Benami Bill, expected Demonetization, Arrests of high profile corrupt people, changes in property taxes dis-incentivizing flipping, increasing documentation, etc.

        Space for negative forces is becoming increasingly scarce.

        That is the general tide I am basing my humble opinion on.

        Reply
        • Hasan
          Thanks for sharing stunning news
          5000 PAK BILLS if removed from circulation will create havoc in reality sector
          Prices are still 25% down
          Another 50% down grade will follow
          so prices will fall 60% from peak in June 2016
          This will prove BLOOD BATH FOR REALITY SECTOR
          As happened in India

          Reply
  5. Don’t be disheartened by a temporary uptick in property prices. It’s a blip meaning it’ll go away shortly.

    Hardly anyone worth his weight in black money is availing himself of the amnesty scheme, more commonly known as ‘The Trap’. However, real estate agents are spreading the myth that due to amnesty scheme, business has started showing activity again. Wrong. That’s not the real reason.

    Here’s what’s happening:

    Despite the façade of aggressive posturing against India for public consumption, in reality Pakistan and India both follow each other on an underlying basis. Over there, demonetization of high value bills to document economy & also to tighten noose around black money, is making life somewhat uneasy for the unscrupulous types. While Pakistan government has denied it’ll be demonetizing PKR 5000 bills but no one with black money including business men with untaxed wealth, is buying that story. They believe demonetization is shortly going to happen here too. Hence, the urgency to transform their beloved black money before that happens, or it’ll be rendered worthless. Best way to do it is via real estate that could store large amounts of money (as opposed to that money floating around in their houses mostly in high denomination bills).

    People with black money are trying to seize the momentary (perceived) relaxation emanating from recent departure of widely loved Army Chief. They want to quickly dispose of their properties bought from black money and bolt out of Pakistan before things start going south i.e. before high profile arrests of people involved in corruption start occurring. Hence, they have started asking for high prices but are demanding white money so that after payment of taxes (which would be a small cost to them), their entire loot becomes snow white and easier to run away with. This used to be opposite. Previously, a seller would demand certain amount in cash so that only non-cash component equivalent to DC values need be declared. The rest would be untaxed black money with him. Now same seller is actually asking for all white money so that after payment of some taxes, all of it becomes his legal / white money, that he probably assumes would also accompany him in afterlife which is why he dedicates so much effort to its protection & proper color scheme. He’s trying to bid up the price to be able to keep as much of it as possible after taxes and also to claim that much of it was due to capital appreciation (current sale value less DC value that would have been declared previously ….the wider the difference, more black money could be safely turned white). However, if he’s unable to sell property in this limited time window (before arrests occur), then he’ll be left with multiple properties with zero explanation of how he acquired them given known & limited sources of income. And no, they can’t count on that notorious plea bargain tool of NAB to remain available for too long.

    Therefore, as a combination of these reasons you see the strange phenomenon of some buyers (but not too many) and ‘suddenly’ rising property prices as if there are hordes of buyers (which there aren’t).

    In summary, this temporary blip is not based on real demand and supply representing money earned from legitimate sources and properly declared & taxed. Consider this as a last ditch attempt by negative forces to save their skins; almost like a death spasm that appears to give a lot of movement but it’s actually the end.

    Give it a little time. Your time is just around the corner.

    Reply
    • Hasan
      Thanks again for detailed analysis

      WHY MARKET IS ON RISE

      1- December is the month when lot of Pakistani visit homeland and invest in property
      2- Some investors are cashing amnesty scheme
      3- Hype by realtors that property market is ok

      ON GROUND REALITY

      1- Last day massive protest by property dealers in DHA Lahore against high property taxes; major cause of stangnat reality sector according to dealers
      2- 1000,s of Unsold houses in DHA Lahore since 9 months
      3- Record low launch of new real estate projects
      4- One property dealer in DHA. I met him last night and he has sold out his 5 cars. I told him that there are news that due to amnesty scheme market is on rise. He told me that amnestscheme is a trap and no one is availing it. I questioned about market performance. He told me that property market is performing so good that he has sold out his cars on massive loss. ALLLAS

      Reply
      • rizwan

        on   said 

        GHAR47 SORRY BUT IN KHI STILL I CANNOT BUY WHAT U R SAYING….I AM VERY MUCH DISHEARTENED AS I THOUGHT PRICES WILL DECLINE AND NO AMNESTY BUT TO MY SHOCK NO DECLINE INFACT BROKERS DEMANDING HIGHER PRICES DUE TO WHICH CANNOT BUY A HOME…VERY DISHEARTENED….NO DECLINE CAN BE SEEN IN NEAR FUTURE 🙁

        Reply
        • Rizwan
          Things are ugly its true
          But we should not loose hope
          ONE THING
          IF PEOPLE ARE INVESTING IN PROPERTY SECTOR
          WHY STOCKS ARE SO HIGH AT NEAR 48,000
          HIGH PRICES ARE ONLY HYPE OF REALTORS

          Reply
  6. rizwan

    on   said 

    PRICES ARE RISING DAY BY DAY CANNOT EVEN TOUCH THE MARKET….ALTHOUGH THE BROKERS I ASKED FROM SAYING THAT VOLUMES HAVE ALSO INCREASED IN KHI DHA AND PRICES ARE ALSO INCREASING….DUNNO WHAT IS HAPPENING….VERY CONFUSED AS CANNOT BUY MY OWN HOUSE AND LIVING ON HIGH RENTS

    Reply
    • YOUSUF LODHI

      on   said 

      RIZWAN…….I totally agree with you.
      In Karachi, quite surprisingly, there is a great activity in areas that come under category 4 and 5 of FBR table such as scheme 33 and 45. Prices are gone up and not many deals are getting confirmed. I purchased a plot of 240 square yard in GULSHAN E MAYMAR for a price of 61-lac 3 weeks ago…..and…..the second one for a price of 65 lac 2 days ago (an increase of 4 lacs in 3 weeks)

      Same thing is happening in Bahria Town, Karachi

      Also same thing is happening in DHA Phase 8. Before amnesty scheme, a plot of 150 yard was available at 250-lac but now can not find it even at a price of 340-lac. It seems really funny. Where is the price fall in Karachi ??????

      Reply
  7. Saima

    on   said 

    Total confusion in the market
    Asking prices are on rise
    But no buyer in the market
    Estate agents are telling that amnesty scheme is trap

    Reply
  8. Gohar

    on   said 

    Nice blog
    Due to amnesty scheme seller and dealers are asking high prices but still no break through
    Agree thay couple of months will shape the market
    Regards

    Reply

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