500 real estate agencies have closed business with lacklustre activity. PHOTO: AFP
LAHORE: With much of the activity focused on unregulated speculative trade driving the realty prices up, the recent changes in tax laws have proved to be fatal.
It appears that the property market is resisting movement towards a new equilibrium where real estate would be more realistically priced. Pakistan’s property market has registered lethargic performance following the introduction of a new tax regime on July 1, 2016.
According to Zameen.com statistics, property prices in Lahore, Islamabad and Karachi experienced a significant drop in the third quarter (Q3) of 2016. By comparison, in 2015, the realty markets of the three metropolises had witnessed an upward movement during the same period.
Investment activity dropped to an alarmingly low level during the quarter, signalling an impending precipitous price drop in the property market. With most estate agencies merely acting as a front to facilitate speculative investors, the changes in tax laws mean their shops have lost their clientele.
According to an estimate, nearly 500 real estate agencies have closed business since the implementation of the new tax regime and the number is expected to increase if the stalemate persists.
Lahore
In Q3 of 2015, the Lahore market had seen a sharp increase in real estate prices, but in the same period of 2016, it remained shaky amid stalled investment activity.
The average asking price for one kanal and 10 marla plots in the Defence Housing Authority Lahore’s Phases VII to IX dropped 2.74% and 3.55%, respectively. Even in Phases I to VI, where the property trade is mostly steered by genuine buyers and sellers, a drop of 2.28% was registered in the average price of one kanal plots.
The price for one kanal plot in Bahria Town remained stable during the quarter, however, the same plot category recorded a drop of 3.49% in Bahria Orchard. In LDA Avenue-1, the average asking price for one kanal and 10 marla plots fell by 3.49% and 3.10% respectively.
Islamabad
The property market of Islamabad remained rocky in Q3 of 2016. Following the new taxation measures, the Bahria Town and DHA Islamabad recorded drops of 1.49% and 1.31%, respectively, during the quarter ended September 30.
The sale-purchase activity in Sector B-17 also remained stalled, due to which prices of one kanal plot in the locality fell by 3.32%.
Karachi
The realty market of Karachi had been bustling with immense activity during the first half of 2016. However, the optimism vanished after implementation of the new tax regime.
As per Zameen.com statistics, average asking prices for 500 square-yard plots in DHA Karachi and DHA City Karachi dipped 4.03% and 7.22%, respectively, over the course of three months. The same localities had registered sharp increases in property values during the first six months of the year.
The new tax regime also pushed property prices down the slope in Bahria Town Karachi. In Q3, average asking prices of 500 square-yard and 250 square-yard plots in the locality dropped by 1.77% and 4.15%, respectively.
Gulshan-e-Iqbal followed the same trend and recorded drops in property values over the course of the quarter.
Whether the new tax regime has pushed black money and speculative buyers out of the real estate market and would bring back genuine buyers or pushed the market on the brink of collapse remains to be seen. What is clear is that the change in the tax regime is making its effect very clear.
Published in The Express Tribune, November 6th, 2016.
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