After experiencing years of boom, it seems that Pakistan's real estate sector is gradually entering a downward curve, and the downslide is likely to continue in the months ahead. Property prices in Karachi, especially of plots, have come down by eight to 15 percent during the last fortnight or so, as investors are not ready to take risks in view of the uncertain political and economic situation prevailing in the country, says a news report.
It will be recalled that real estate prices had declined by 20 to 30 percent in 2008, and these had further gone down by another five to 15 percent after the Mumbai attacks that resulted in increased tension between the two countries. Property advisers are now also attributing the slump to the reported arrival of Taliban in Karachi.
After 10 to 15 percent decline, the price of a 500-yard plot in Phase-VIII now ranges from Rs 6 million to Rs 7.5 million, depending on its location. Further, the price of a 1,000-yard plot in the same phase ranges from Rs 10 million to Rs 15 million in the fourth to eighth belt, though property of a similar size and attributes with its location in the first to third belt is priced at approximately Rs 20 million. A bleak outlook has meanwhile been forecast in property market during the next five to six months. One of the causes of the slump is that those who had purchased property in Karachi out of profits earned from Dubai market are deeply concerned over the price crash in the local market, and are reportedly keen to dispose of the plots to avoid further losses.
One of the causes of the slump currently holding Pakistan's real estate sector in its grip is the stock market crash that took place last year because stock exchanges are closely linked to the financial and investment markets. Our stock market crash was itself a knock-on effect of the Wall Street crash that had preceded it, generating financial shock waves across the globe. As in all sectors of the economy, the availability of liquidity in sufficient amounts is an important factor in keeping the markets functioning.
Real estate has in fact been turned into a mega investment sector over the years, ensuring probably the most rapid and lucrative returns imaginable on investments. Some analysts maintain that even a small increase in demand for housing can lead to a significant rise in prices. The demand for housing is itself traditionally linked to the increase in incomes, while higher interest rates push up the cost of mortgage repayments, thereby reducing the demand. Yet another factor involved is the increase in population, which has put pressure on housing.
In fact, the pressure on housing, particularly in Pakistan's urban centres, is as much a result of rapid growth in population as of rural-urban, intra-city, and inter-provincial migration. (According to some projections, Karachi's population will grow to 20.6 million and Lahore's to 10.8 million by the year 2025.) Another critical factor determining real estate prices in a major urban centre like Karachi is the price manipulation resorted to by real estate operators, though the degree of such manipulation is influenced by availability of capital.
It will be recalled that the real estate boom was largely spearheaded by property developers, which has since waned after reaching a saturation point. The downhill slide was therefore only a matter of time. Many small and medium investors have meanwhile either put their investment plans in Pakistan on hold or are focusing on banks and on various national saving schemes because of good returns offered by these institutions, aside from the comparative safety of investments.
While 8 to 15 percent fall in property prices in Karachi is indeed a good development from the perspective of prospective buyers, the astronomical figures quoted in the news report are reflective of the plight of the middle and lower income groups who make up a majority of the population. The mounting shortage of available land under pressure of housing has long put owning a house by those belonging to lower income brackets beyond the realm of possibility, it has also generated adverse socio-economic repercussions in the country. The government should devise a comprehensive strategy to address all aspects of the real estate sector in the country.