The real estate market is widely considered as one of the safest heavens to whiten the black money in Pakistan. But in the past couple of years, things are changing drastically because of the introduction of new real estate laws. In budget 2016-17, the new laws have raised the taxes on property dealings, property prices were revised and the flow of black money in the real estate sector was blocked by the government. Here are some of the key reasons why the market has been crashed.
1-Action against Black Money
The initiation of ruthless accounting in the country is one of the major reason behind the recent prices falls. The government has zero tolerance policy for black money. Many buyers who bought their properties through black money are now getting inquired about the source of income. As the buyers who purchase property through black money are scared, therefore, investment in real estate sector is quite low at the moment. And this is also one of the key reasons for property price fall.
2-Restrictions on Non-Filers
The PTI government has imposed the property purchasing restrictions for the nonfilers in Mini Budget 2018-19. This move has destroyed the luxury property segment as it is rare to find the filer buyers. Additionally, foreign living Pakistani expats also need to produce a certificate from the banks to prove that money was sent from abroad just 60 days prior to property registration. Both of these laws have stricken the investment in the real estate sector and prices are falling throughout the country.
3-Naya Pakistan Housing Programme
The government of Pakistan plans to build 5 million affordable homes, however, the country is in extreme need of 12 million new homes to solve the housing crisis. Currently. we are only building 200,000 housing units. The houses to be constructed under the NPHP will be available on installments. The potential buyers of properties in private housing schemes are now considering affordable homes. This development has reduced the volume of investment in private housing societies and real estate projects. Therefore we can see real estate price decline across Pakistan.
4-High-rising Interest Rate
The rise in interest rate leads to property price decline and vice versa. By observing the two real estate booms in Pakistan (first boom 2003-2006 & second boom 2013-2016) we can see the major impact of interest rates on property prices. The first property boom started with the decrease of interest rate to 7%. Property prices crashed when interest rate was increased to 9%. During the second property boom prices peaked in 2016 when interest rate was historic low at 5.75% and started declining with the rise of interest rate. Now interest rate stands at 8.5%. Another crash is just on the corner as people are depositing money in banks to earn profits instead of investing in real estate sector.
5-Illegal Housing Projects
One of the reasons of Pakistan real estate market crash is the crackdown of NAB against illegal housing schemes. Many Pakistanis have lost their life savings due to property scams. But things have changed as new government has started to demolish the illegal constructions. At the same time many housing schemes have been sealed by NAB in recent pass. According to NAB there are 6,000 illegal housing schemes or societies in Pakistan. This has also reduced the investment in reality sector as people are afraid to buy properties in housing schemes. The ultimate result is property price crash.
Property Price Forecast
Pakistan property prices are 35% down from a peak of 2016. Still another 30-40% price crash is expected as prices are still out of reach of most people. Many people think that such a massive price crash is impossible. They should know what has happened in Dubai. Property prices in Dubai are now AED 600 per sq ft whereas they were AED 2200 per sq ft in 2008. Property prices in Dubai are just 25% of what they were in 2008 because of new international laws that have blocked the black money investment. We will see similar property price trends in Pakistan.