Contrary to popular perception, real estate prices have yet not reverted to the pre-crisis peak of 2007. Data gathered from Zameen.com’s portal show that the average price of one canal (500 square yards) plot in December 2013 was higher by 30 percent over its price in January 2007. That, however, is in rupee terms. In dollar terms, the price in December 2013 was still three-fourth of what it was in January 2007.
Here it is important to note that this analysis is based on the housing plots’ prices in DHA Lahore (average prices as a proxy). The reason for taking this as a proxy is that property rights are perceived to be more secure in this location, where new housing phases have emerged in the past few years and relatively sophisticated data set is available.
One may assign low credibility to this proxy data as it is based on prices quoted at a private portal. One may also question that the average data do not depict the right picture, as emergence of new phases lately (Phases 7, 8 & 9) have diluted the price appreciation of hot cakes (Phase 5 &6) whereas earlier phases (1,2,3,4) have matured.
However, similar trend has been observed at stock market as KSE’s market cap at $56.6 billion in December 2013 was 78 percent of its peak of $72.8 billion in April 2008. Isn’t it interesting?
One may then argue that the analysis in USD terms may be skewed as rupee-dollar parity was artificially kept at Rs60/USD during the Musharraf regime and it busted ever since the country entered the IMF’s programme in 2008. But it’s pertinent to note that general inflation (CPI) has more-than-doubled in last six years. Hence in real terms, by any means, real estate prices have not regained their peak.
The reason for bringing up this analysis is to inform the readers they should stop being surprised or shocked by hike in both real estate and stock markets lately and stop speculating on the emergence of a new bubble as prices may go further north sooner or later.
The interesting dynamic in the real estate market is harmonisation of construction cost with the land price. For instance, in 2008 an A-class housing construction was around Rs1,250 per square feet and it’s now doubled while the land prices in Lahore are lower than what were in 2008. This implies that there would be less speculative activities by preemptive investment in land. That’s a good omen and shows that the market is maturing; the investment in real estate market is generating economic activities and it’s no more a bubble.
For a comparative analysis between Lahore’s DHA and Bahria Town, see tomorrow’s section.
Comments
Comments are closed.