Another Blow to Property Prices as Interest Rate at 12.25%:
The State Bank of Pakistan has increased the policy rate by 150 basis points. In other words interest rate has been increased from 10.75% to 12.25%. The interest rate is known as the best tool to control the rising inflation and depreciating currency. As per government, interest rate has been increased because of high crude oil price in the international market. This blog describe Another Blow to Property Prices as Interest Rate at 12.25%.
INTEREST RATE vs PROPERTY PRICE:
Impact of interest rate increase on real estate prices:
Property prices decrease after the increase in interest rate. This is because banks give more profits on saving accounts. So people sell properties to deposit their money in banks. More properties than the buyers decrease the property demand so prices fall.
Impact of interest rate decrease on real estate prices:
Property prices increase after the decrease in interest rate. This is because banks give less profits on saving accounts. So people withdraw money from banks to invest in real estate sector. The increased demand for real estate results in increasing the property prices.
History of Pakistan interest rate changes and impacts on realty sector:
In recent century two property booms and crashes have been observed in Pakistan. First boom/crash was from 2003 to 2006 whereas second boom/crash was from 2013 to 2016. Both booms were the direct results of record low interest rates (7.5% and 5.75%). But both booms were followed by a property price crash when interest rates were increased.
Pakistan realty market and the future price trends:
The property prices in Pakistan peaked in 2016. Since then prices are in constant decline due to increase in property valuation rate by FBR, higher taxes on property transactions (Stamp Duty, Withholding tax & Capital Gain Tax) and low investments. Property transactions are record low. Prices have already decline by 40% for high end properties in high speculation markets. Property prices of 2016 will be observed in 2025. So a long decline and stagnation.
People want to know amnesty scheme:
Tax Amnesty Schemes have never worked in Pakistan because people don’t want to be tax filers. The property prices are in constant decline since 2016 even an amnesty scheme was offered in 2018. PAKISTAN AMNESTY SCHEME 2019 will fail like previous amnesty schemes. Readers should know that most important factor that increases or decreases property price is the INTEREST RATE. Therefore people who want to see high property prices have to wait for the interest rate decrease.