KARACHI: Azhar put up his residential plot for sale in the open market a few months ago, but each time he approached the broker he returned disappointed.
The plot, located in the outskirts of Pakistan’s biggest city, had offered phenomenal returns to Azhar and peaked around a few months ago after which the middle-aged man decided to sell and move into a bigger apartment.
Little did he know that the growth trajectory was over and that property prices were soon about to fall.
In four months, his plot lost over 30%, dashing his family’s hope of living in a comparatively more upscale and developed neighbourhood. A 30% fall in price is by no means a minor retreat.
Is it a real estate crash? The more he talks to property dealers, the more he panics.
“This phenomenon is difficult to explain completely,” CITI Associates CEO Muhammad Shafi Jakvani told The Express Tribune.
However, he said, one major factor that has dampened investors’ trust is the slow pace of work in some developing residential schemes.
Market observers say property prices posted decent returns from 2014 to 2017, but all that euphoria is gone.
Some say the market is making a correction, which was bound to happen after it provided mouth-watering returns for over three years.
Developed housing localities still offer the same mouth-watering returns, but it is the new ones, which attracted fresh investments in the last five years or so, that have seen a bearish run.
Plot prices that were in the range of Rs11.5 to 14.5 million a few months ago have now come down to Rs7 to 11 million, a massive decline of up to 39%.
Political noise and property market
Property market in Pakistan has always been closely linked with the political atmosphere. With relative political stability in the last four years or so, the property market has provided strong returns compared to other investment avenues.
However, industry officials have varied views on the link between property market performance and political problems that have emerged since the ouster of Nawaz Sharif.
“General elections are not too far and I believe some investors are holding their positions. Political temperature is also rising for the last few months and it has also dampened the atmosphere,” commented Jakvani.
However, some believe the political factor is not the major one.
“I do not think the current problems of the market are because of political noise in the country. It is mostly connected with the bad government policies in last one and a half years,” added Arif Jeewa, chairman of Association of Builders and Developers of Pakistan (ABAD) – a body of over 700 members.
Some builders and developers say Islamabad has also seen a slowdown in recent months, but it is mainly due to over-supply of ready to live properties, especially apartments.
Property market in the country has been on the slower since mid-2016. The first jolt was witnessed when the Federal Board of Revenue (FBR) announced property valuations for all major cities, substantially higher than the old rates, in a bid to increase taxes from the sector. However, the government failed to collect enough taxes, leaving the extraordinary growth in the market in doldrums. Real estate dealers say the market recovered by December 2016, but continued its slide from the new year.
Karachi the most affected city
In May 2017, the Supreme Court slapped a ban on high rises and ground-plus-two floor buildings in Karachi. Since then, the city has witnessed up to a 30% decline in major commercial property sites, especially in DHA.
Buyer who bought commercial properties now want to sell in droves as they cannot build four-storey buildings due to the Supreme Court ban. The ban was slapped on the request of Karachi Water and Sewage Board (KWSB) as it was not able to provide enough water to new high rise buildings in the city.
Despite an extraordinary decline in commercial property prices in Karachi, most property dealers of the city agree residential property rates are fairly stable, except in few cases.
ABAD said 308 high rise buildings, mostly in Karachi, are waiting to get clearance from the Sindh Building Control Authority (SBCA). This accumulative investment exceeds Rs600 billion and it will become a huge issue for the government in the next few months.
Real estate dealers say there is so much demand for housing in the country that no property bubble or real estate crash could actually hit the market. With a shortage of over 10 million houses in Pakistan, equilibrium emerges whenever any major decline in real estate prices occurrs.
Property dealers say the FBR has instilled fear in the market by issuing letters to those who do large bank transactions. The fear of being caught by the tax authorities is also discouraging many to avoid dealing in the sector.
“Government can still handle the situation by taking all stakeholders onboard. Otherwise, the money that is currently in the property market may find its way in some other unproductive sector or even outside Pakistan,” AB Enterprises CEO Shaban Elahi commented.
The writer is a staff correspondent
Published in The Express Tribune, November 13th, 2017.