Bright prospect for domestic and foreign investors
The Pakistani real estate market made progress in the last six months of fiscal 2016 after feeling the wrath of the new tax regime. The remaining six months proved to be catastrophic. The buyers and sellers dropped by 75 percent in post new tax regime. Real estate sector managed to record an overall growth of 118 percent over the last five years while in the first six months of 2016, the markets of Lahore, Islamabad and Karachi achieved a growth of 13.6 percent, 8.26 percent and 11.39 percent, respectively.
The financial recovery in the real sector came through a budget measure when the government imposed a capital gains tax on the real estate sector if a property exchanged hands before two years. A lengthy deadlock finally reached its height when the government introduced and approved amnesty scheme approved. The scheme was introduced to whiten Rs7 trillion invested in the property sector before July 1, 2016.
For a number of months, the real estate market of Karachi saw no investment activity. The limited activity seen in the market was only due to genuine buying and selling.
In this context property rates in all major areas including DHA Karachi and DHA City Karachi saw a major drop. According to the Defense and Clifton Association of Real Estate Agents (DEFCLAREA) President, Sindh’s property market faced a loss of Rs500 million since July 2016.
The real estate investment activity in Islamabad has dropped 50 percent ever since the new tax regime has been implemented. As a result of this the market remained deadlocked and many real estate agents went out of business.
The financial recovery in the real sector came through a budget measure when the government imposed a capital gains tax on the real estate sector if a property exchanged hands before two years.
A lengthy deadlock finally reached its height when the government introduced an amnesty scheme that was finally approved. The scheme was introduced to whiten Rs7 trillion invested in the property sector before July 1, 2016.
It should be kept in mind the real estate sector contributes heavily to the national exchequer. The tax amnesty scheme alone cannot help reverse the damage done to the property market. The highly profitable markets of Pakistan still drew investor interest in calendar year 2016.
In the first half (Jan-Jun) of the year, the real estate markets touched new peaks, the next six months were not so bad at least as far as the drop in land prices is concerned. In that period, the market activities had taken a sharp drop; a few investors kept making profits in some areas.
According to the annual statistics for 2016 released by property portal Zameen.com, the Defense Housing Authority (DHA) Gujranwala led the momentum with a surge of 42.23 percent in prices of 250-square-yard plots and increase of 38.96 percent in 500-square-yard plots.
No other DHA zone and other localities throughout the country came close to these levels. The primary reason behind the price jump in DHA Gujranwala was comparatively lower land prices there that stood below Rs4 million as the new tax structure did not apply to these pieces of land.
The overall performance of Lahore’s property market was not very magnificent in 2016. Though prices of one-kanal and 10-marla plots in DHA Lahore Phases VII, VIII and IX rose 5.24 percent and 6.80 percent respectively, the modest growth could not be replicated in LDA Avenue-I, Bahria Town and Wapda Town. Prices of one-kanal plots in LDA Avenue-I, in fact, dropped 1.43 percent over the course of the year. On the other hand, the performance of Bahria Orchard was satisfactory as the average price of 10-marla plots in the locality increased 11.19 percent.
Real estate investors are still wary of amnesty scheme. This number could have been more impressive, but after new taxes were imposed in July, the price growth slowed down for the remainder of the year.
The property market of the Islamabad remained somber with unremarkable numbers during 2016. DHA Islamabad was the only major residential project where average prices of one-kanal and 10-Marla plots substantially increased by 7.0 and 9.10 percent respectively. On the contrary, prices of one-kanal and 10-Marla plots in Bahria Town dropped 9.49 percent and 6.82 percent respectively. Real estate prices showed stability in Sector E-11 while in Sector B-17; a moderate 6.94 percent drop was recorded for the one-kanal category. Prices remained somewhat stable in Gulberg Residencia.
Karachi performed relatively better compared to Islamabad. Though DHA City registered a stellar performance, Bahria Town and DHA recorded moderate advances.
Average prices of 500-square-yard and 250-square-yard plots in DHA City rose 21.35 percent and 11.31percent respectively in 2016 whereas Bahria Town registered a price increase of 7.69 percent in its 500-square-yard category.
Though DHA Gujranwala had not been launched officially, property prices there still showed a positive picture in 2016. According to Zameen.com, average prices of one-kanal and 10-Marla plots in the locality recorded a whopping 38.96 percent and 42.23 percent increase respectively, indicating heightened investor interest despite the new tax structure.
With development work progressing, Master City was also a highlight of Gujranwala’s property market. Average price of 10-marla plots in the locality spiked 13.42 percent.
The property market has a lot of potential to add to the national exchequer.
The new tax regime could have been moved upward in a more gradual manner to ensure that the market does not decline. But now that the new taxes are in place, the 2017 will be gradual return to normality.
The readiness of Pakistanis and foreign investors is abounding. Confidence in the real estate market is rising and all predictions claim it is going to increase in the coming months and years.
Some foreign companies have already penetrated in the Pakistani market in various other sectors, in addition to the real estate sector.
Several major commercial and residential projects were halted in the recent past adding a disturbed look to the landscape of Karachi and other cities, so it will be awe-inspiring to see them to completion. Where the government could not rescue them, the private and semi-private markets can potentially do.
Awareness and vigilance needs to be heeded, however, in the way dealings are made. Considering that Pakistan has a reputation to be a tax safe place for many, regulatory laws and policies need to be e
People who previously invested in the United Arab Emirates, especially Dubai, and elsewhere like the United States, may soon be coming to Pakistan and so Pakistan must prepare for that.
Time is short to revise financial policies as President Donald Trump continues to frighten people out of the US, un consciously encouraging them to return to their countries of origin. Pakistan will surely welcome them and their foreign currency with open arms, as it always has in the past.
Pakistan must ensure that its financial practices are on a par with global standards and work to rid off the stamp of corruption that has its reputation for several years.
After experiencing some hurdles towards the middle of last year, it is good to see the growth in Pakistan’s real estate sector.
Investors’ confidence in Pakistan’s economy seems to reflect the country’s flourishing real estate sector which is showing double-digit return on investment in metropolitan areas.
In the background of hard commodity prices and with local stock market offering low returns, the real-estate sector is showing significant growth in Pakistan’s biggest city of Karachi, central Lahore city and capital Islamabad. The trend displays large cash liquidity and investors’ confidence.
Of the three metropolitan cities, Karachi topped the list where prices of 500 and 250 yard plots were up on average by 25 percent. DHA City prices were up on average by 67 percent while Bahria Town fell by 14 percent during 2015 due to some investor concerns though development works in Bahria Town continue.
Lahore, the second largest metropolitan area, provided good returns, where 500 and 250 yard plots were up on average by 8 percent during 2015.
Contrary to Bahria Town’s performance in Karachi, Bahria Town Lahore was up by significant 14 percent while DHA Lahore remained more or less flat during 2015.
Pakistan’s leading property portal zameen.com recently released real estate property index based on prices going back to 2011.
All the three metropolitan areas of the country have provided phenomenal returns to investors with Karachi outperforming both Lahore and Islamabad since 2011.
Average plot prices in Karachi have increased by 250 percent since January 2011, while plot prices in Lahore and Islamabad are up by 153 percent and 146 percent respectively.
Booming real estate market is reflective in rising demand for cements where local cement demand has been rising in double digits.
More and more real estate projects are coming on line due to higher prices and are reflective of higher construction activity witnessed throughout the country.
Further, steel consumption also gets a boost by higher construction activity due to higher property prices and is beneficial for local steel players.