Pakistan property prices are about to crash
History of property boom and bust in Pakistan
From 1947-2002, Pakistan real estate sector was never considered as an investment hotspot. The first real estate boom in history of Pakistan was observed from 2003 to 2005. In 2005 prices were so high that common Pakistanis were unable to even think of buying small properties. The real estate bubble soon busted and prices started crashing until 2009. From 2010 to 2012, we saw slow but gradual property price appreciation. Pakistan observed its second property boom from 2013 to 2016.
There were four major reasons of property booms in Pakistan. Firstly, during every boom in Pakistan, interest rates were record low. Due to low interest rates, people withdrew their money from banks and invested in real estate sector. Secondly, there were no major taxes on real estate sector due to which day trading, speculation and flow of black money increased in real estate sector. Thirdly, great infrastructure boom in major cities of Pakistan was also a major reason of high property prices. Fourthly, Pakistani expatriates sent record remittances and major portion of these remittances ended in the real estate sector.
Current situation of Pakistan property market
Before the month of Ramadan property market was observing gradual price appreciation. Property market slowed in the month of Ramadan, which is a normal routine. Property transactions have halted since July 1, 2016 as government has imposed new property taxes and new property tax evaluation system.
Coming property crash in Pakistan
Pakistan real estate sector is heading for crash. Here are the major reasons of this price crash:
House affordability is very low due to sky high prices
Due to sky high property prices in Pakistan, house affordability is very low. Even doctors, engineers, accountants and other top professionals in Pakistan cannot buy homes. Affordable house price to income ratio is normally 1:5, but in Pakistan it’s more than 1:10. When there are no buyers for properties, a crash is due to happen shortly.
New property tax evaluation system in Pakistan
The government has imposed new taxes and property tax evaluation mechanism in Pakistan. According to this new evaluation system, property tax will be calculated on higher rates rather than DC rates. These new developments have negative effects on day trading in real estate sector. Day trading in real estate sector is one of the major reasons of sky high property prices in Pakistan. Due to the absence of day trading property prices will crash in Pakistan.
Investor are withdrawing their investments
Due to imposition of high capital gain tax, investors are withdrawing their investments to invest in more profitable investments like stocks & shares. This is why Pakistan Stock Exchange is hitting new highs every other day. PSX is named as one of the top 10 best performing stock exchanges in the world. Investors are one of the major reasons of high property transactions. In the absence of investors, real estate prices will crash.
Foreign Pakistanis are losing purchasing power
The main reason of sky high property prices in Pakistan are the foreign Pakistanis with high purchasing power. In last year, Pakistani expatriates sent record $20 billion remittances. Large portion of these remittances were parked in the real estate sector and we can see sky high property prices in Pakistan.
Foreign Pakistanis are fast loosing purchasing power due to uncertain economic circumstances in western countries. Pakistanis who are living in UK & Europe have lost lot of fortune due to declining currencies after Brexit. Same is true for USA, Australia, Canada and Middle Eastern Countries are at fire due to low oil prices.
Therefore, it is expected that Pakistani expatriates will send fewer remittances next year. Due to this we will ultimately see reduced real estate transactions in Pakistan and property prices will crash.
Negative sentiments about real estate market
Real estate sector works according to many fundamental but what matters most is the sentiments of general public. When there are positive sentiments people start investing in real estate sector and when there is negative sentiments people withdraw their investments. At the moment there are negative sentiments about real estate sector and people are canceling even sure deals. Due to this negative perception a property crash is imminent.
Property price crash is good for real home hunters
Real home buyers in Pakistan are upset due to inflated house prices. First time in history of Pakistan renters are increasing due to abnormally high house prices. Due to high property prices, home ownership is also decreasing in Pakistan. The house price crash in Pakistan will provide the most desired relief for the middle-class people, especially for the first time home buyers as they will be able to buy homes.