REASONS OF PROPERTY PRICES CRASH IN PAKISTAN

In Pakistan real estate market was generally considered 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 is various reasons for the price crash and on the basis of data from the previous year the situation is explained below:

REASONS FOR PROPERTY PRICES CRASH IN PAKISTAN

Economic Downturn

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

New Property Tax Laws

Interestingly, Pakistan Budget 2019-20 was deemed as the game changer for the real estate sector due to property tax amendments. Firstly people were made filers to buy properties. Secondly, the seller has to hold constructed property for four years and the plot for eight years to avoid a higher Capital Gain Tax. Thirdly property valuation rates have been increased by FBR up to 85% of the market value due to which the 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 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 a direct impact on property prices. The rise in interest rate decreases 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 increase the demand and prices are automatically hiked. Therefore the second reason for the real estate price Crash in Pakistan is due to the high-interest rate.

Benami Assets Confiscation

Up till now, the real estate sector was the safe haven to park black money in Pakistan. With impunity, people hoarded ill-gotten wealth through Benami Assets. But government’s introduction of new stringent laws to confiscate Benami Assets has decreased small-scale investment opportunities in Pakistan. FBR has a zero-tolerance policy for black money and Benami Assets. As it is almost impossible to invest and hide ill-gotten wealth so real estate investments have decreased. The low property demand and investment have 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 the realty sector so speculation and illegal investment have no room. Secondly, the property will be only for living or commercial uses unlike the tradition of the old days. Thirdly, abrupt or abnormal property prices will no more be frequent and the future prices will have a steady and gradual change. Lastly, everyone, a tax filer will be able to own a home in Pakistan. All the business will be fair and transparent.