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REASONS OF PROPERTY PRICES CRASH IN PAKISTAN

REASONS OF PROPERTY PRICES CRASH IN PAKISTAN

In the Pakistan real estate market was generally considered as the best performing asset class due to constant profit and quick gains. But things have changed now as real estate prices crash in Pakistan since 2016. There are various reason for the price crash and on the basis of data of previous year the situation is explained below:

REASONS OF PROPERTY PRICES CRASH IN PAKISTAN

Economic Downturn

Almost 70% economy of Pakistan was black economy and there were no check on it but now government has zero tolerance for black money. But this time the government has mandated that everyone has to be filer and show the source of income. Therefore readjustment has disturbed the economy at large. Also, devaluation of Pakistani currency against mighty dollar further added to the already imbalance economy. Economic decline results in decrease in the buying power so property prices also decrease and vice versa. Economic Downturn accounts for the first major reason of the property prices crash in Pakistan.

New Property Tax Laws

Interestingly, Pakistan Budget 2019-20 deemed as the game changer for real estate sector due to property tax amendments. Firstly people were made filers to buy properties. Secondly seller has to hold constructed property for four years and plot for eight years to avoid higher Capital Gain Tax. Thirdly property valuation rates have been increased by FBR up to 85% of the market value due to which volume of transactions has decreased. Investors show less interest in real estate investment in Pakistan sector due to new property tax amendments. The low investment has decreased the property prices. So it is the third major reason of property prices crash in Pakistan.

High Interest Rate

Interest rate is inversely proportional to property price or it has direct impact on property prices. The rise in interest rate decreases the property prices and vice versa. This is because when interest rate increases banks give more profits on fixed deposits. So people sell properties and deposit money in banks to earn high profits. But when interest rate decreases people start buying properties which increases the demand and prices are automatically hiked. Therefore second reason of real estate Prices Crash in Pakistan is due to high interest rate.

Benami Assets Confiscation

Up till now, real estate sector was the safe haven to park the black money in Pakistan. With impunity people hoarded ill-gotten wealth through Benami Assets. But government’s introduction of new stringent laws to confiscate the Benami Assets have decreased small scale investment opportunities in Pakistan. FBR has zero tolerance policy for black money and Benami Assets. As it is almost impossible to invest and hide the ill-gotten wealth so real estate investments have decreased. The low property demand and investment has led to property prices decline.

Future of Pakistan Realty Sector

The real estate future in Pakistan has changed drastically with completely new rules and policies. Firstly it is impossible to park black money in realty sector so speculation and illegal investment have no room. Secondly, property will be only for living or commercial uses unlike the tradition of old days. Thirdly, abrupt or abnormal property prices will no more be frequent and future price will have a steady and gradual change. Lastly, everyone_a tax filer_ will be able to own home in Pakistan. All the business will be fair and transparent.

 

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