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.