The boom is not an artificial; the artificial rise does not exist for long


Jan 03 - 09, 2005



Karachi City is witnessing a boom in 'Real Estate' business where huge investment is being done on all categories land especially under developed projects, where remarkable rise of plots value has gone to unnatural stage. A visit to the Malir Development Authority (MDA) and Lyari Development Authority (LDA) showed that 'Real Estate' agents are buying plots in 'wholesale' basis. They are contacting every visitor to the LDA and MDA offices the way agents contact every visitor to the Passport Office. Doesn't matter if the allottee has paid single installment or all the installments they are offering from Rs. 100,000 to 300,000 to them for 120 Sq Yards to 400 Sq Yards. The situation seems so different with the fact that Malir Development Authority shattered citizens/allottees trust after scandals appeared in the press. But today situation is different.

"The interest of citizens/allottees has gone to such a stage that we have not only banned agents' entry into our office but we are also refusing to entertain any inquiries regarding plots other than original allottees." Project Manager MDA Shabana Naz told the PAGE. Some time ago there were no visitors here but now we have to distribute the tickets in order to insure the visitor's number and we have planned to give possession to the allottees within six to seven months in Malir Development Authority, she added.

"The boom is not an artificial; the artificial rise does not exist for long. The plot of any category does not rotate within investors for long. Real buyers are coming up, they are buying plots for themselves this is the reasons that investors are putting money into the business for nominal profit." Mr. Owais a 'Real Estate' dealer who is running the business in Clifton Area for years. He said that every type of investors are injecting money into the real estate business because citizens buying power has increased, therefore the investors feel that they will surely get a sum of profit even that is Rs. 20,000 only, he added. Owais further said that foreign investors are also investing through local dealers. They are many reasons but basic reason that 'buying power' of citizens is the basic reason, only middlemen can not invest to such an extend.

Between January and June 2004, real estate prices in Karachi, particularly in the Defence and Clifton localities, rose by a phenomenal 60 to 80 per cent. In other localities like Gulshan-i-Iqbal and PECHS, the rise was about 30 per to 50 per cent. Overall, on average, city property rates jumped by about 40 to 60 per cent in the first six months of the year. Such a marked appreciation in so short a time has been unprecedented for the city. The lack of investment avenues and the huge returns notched up by punters seem to have put the market on fire.

Real estate agents say that while property prices can jump within a matter of days, it takes months or years for them to start receding. After the State Bank put restrictions on the financing of plot purchases, prices have started to ease. However, expecting real estate prices to come down to January 2004 levels "would be expecting too much," says another property dealer. Some real estate dealers, however, hope that within few days within early three months of 2005, the prices will slip downward.

The spurt in property prices also had an effect on city rentals, which have seen an increase of between 10 per cent to 30 per cent in some localities, particularly for commercial properties. Most of the conditions for the price surge have been created by the government, say many observers. The most glaring omission is the lack of new housing schemes or projects either in the public or in the private sector in Karachi City. Despite many trumpeted plans, neither the federal government nor the provincial or city government has launched any meaningful housing schemes in the past five years to cater to the average annual demand for housing in a city which is regarded as the hub of commercial activity in the country.

The only exception has been the Defence Housing Authority. The rise in economic activity and improvement in the fundamentals of the economy have increased demand for property but this is being met only by the existing infrastructure or the DHA. This repressed demand was set alight by the liberalization and simplification of the housing finance sector as well as a diversion of investment from other avenues where returns were low. The easy availability of housing loans and affordable rates of interest empowered borrowers to bid at significantly higher rates for properties.



While this may have been one of the factors, the real culprit was the ease with which speculators could take housing loans and buy plots in lucrative areas, primarily in DHA. While the banks looked the other way, speculators made a killing. Taking loans at low interest rates or investing from money diverted from other avenues like the stock exchange, they went and bought properties whose value appreciated as speculative trends caught on. The end result was that most properties in Karachi went out of the reach of genuine buyers and speculators walked off with millions in the process. Such a situation has been prevailing over the past few months.