Jan 07 - 13, 2008

Due to the country's volatile political situation, the property rates in the DHA and Clifton have been static for the last one and half years owing to lack of investors' interest.

To find answer as to why the trend is static in real estate business and why the investor's interest is moving towards new markets, like Dubai, I took views of Lt. Col (Retd) Khalid Mumtaz who is the Director of the DHA Race Course Garden Project of the Army.

While explaining the real estate boom, he pointed that Prior to 9/11 the real estate in Pakistan was undervalued due to the flight of capital and the slump in business within the country.

A few months after the US incident, prices of the property started to rise which can be termed as the phase one of the real estate boom. This was only in the Karachi's Defence Housing Society, Lahore's Defence Housing Society and Gulberg, and Islamabad's F-6, F-7, F-8 sectors, Blue Area and the Jinnah Super localities. The smallest rise was in Karachi where houses worth Rs5 million went up to Rs12 million in the same period. Reason behind phase one appreciation is that Pakistan started receiving inward remittances from expatriates soon after 9/11. A fair amount was being invested there as these areas have the most transparent property title and transfer procedures. As property prices went up local investors too, joined in.

In the second half of 2003 which can be termed as phase two of the real estate boom, most other areas of major metropolitan centers joined the bandwagon. Price appreciation had a large degree of variance. In some localities prices increased by 15-20 per cent, whereas in other areas it was by 35-50 per cent. Reasons behind phase two are that Pakistan's economy recorded a growth of 6.4 per cent in 2003-04. This expansion was being fuelled by the easy availability of credit and the lax monetary policy. Private sector credit off-take was at record and banks started to venture into home financing business. It is reported that banks disbursed Rs8 billion for the housing sector but the amount of borrowed money that found its way into real estate purchases was far greater than that.

Variation in the rise among different localities of the same city is due to the fact that home buyers preferred new places of residence. Investors speculate that the genuine demand for houses will continue to grow as long as the economy maintains its momentum.

Another feature is the preference of individuals to park their excess capital or savings in property investments due to a number of factors. Historically, the appreciation in real estate has been greater than the rate of inflation and the rate of return offered by banks on deposits. In addition a large segment considers interest bearing deposits as' unethical' from the religious point of view.

While defining the reasons as to why there is this rising trend of real estate, he said that there are various factors that are behind this trend like, shortage of lands at good location, it's being a most profit making venture, and a safe and secure investment. He also pointed that due to improper industrialization and adverse infrastructure, people are tend to live to the places where the basic amenities of life are properly handled and provided with, even though they have to pay huge sums of money for this luxury.

He also iterates that the static trend in the real state business is due to the political uncertainty, however People had made massive investment in booming real estate business in DHA and other areas like Gulistan-e-Jauhar following huge influx of home remittances during the period of 2001-2005 which had pushed up property rates by four times. But today the prices of plots in Karachi's Defence area have declined by 15 to 20 per cent in the last three to four months as people moved their investment from real estate to the steadily rising local bourse. And mainly the key players of the stock market are also evolving as a key player of the real estate business. He also said that it's the right time for buying lands as the land prices are low.

He also pointed out that the recent trend of investment in Dubai's real estate sector, which causes flight of huge amounts outside the country is because the developers assure investors that they would earn family visa and residency rights in the Gulf, which adds to the attraction of the investment. Besides, these investments are thought secure in an economy free of political influences and uncertainties. In Pakistan, the Stock exchanges of the country are always unreliable with wild fluctuations every day shattering the confidence of investors. And Commercial banks offer very low rate of return to depositors. In this situation the investors find real estate and particularly the real estate out of the country most attractive option.

There are a number of real estate agencies in Pakistan, which help people invest their money in housing projects in Dubai.

While giving reasons as to why the price of property are getting out of the reach for the individuals he said that there are various factors like the construction cost. Although the price of real-estate may have dipped slightly across the country if one talks with reference to the boom it had experienced between 2002 and 2005, the cost of construction has already doubled during the last three years, compounding the worries of common man planning to construct a house now.

As the construction costs continue to surge at an alarming rate, the prices of newly-constructed houses in nearly every locality of the country are thus bound to escalate to the sheer dismay of the lower-middle class of the society.

Inflation in market rates of 15 major items involved in construction can be gauged from the fact that in just three years, the cost of bricks has risen from Rs1,700/1,800 per 1,000 to Rs3,600/3,700 per 1,000 pieces.

Hence the prices of bungalows continue to move up because of rising rates of building material. A bungalow constructed over a land of 500 yards in Phase VI is attracting Rs28 million compared to Rs22.5 million six months ago. A bungalow spread over 300 yards in Phase IV is now valued at Rs20 million, rising from Rs15 million only half a year ago.

Today a 500 yards plot in Phase VIII (D-cutting) was priced at Rs750,000 in 2001 and in 2002 it surged to Rs3 million. By end of 2005, it was available at Rs12.5 million. Now it was priced between Rs8 to 8.5 million after the bursting of artificial price bubble in 2006.

Hardly 20 per cent properties in DHA are owned by old armed forces men as majority of the old allottees have sold out their properties to the civilians.

On my query of why the shortage of housing units has already touched alarming proportions over 10 million units and a continuation of policies would only make it worse. He said the main way to handle the following is to provide the general and common man of the society with the low cost housing schemes which they can afford within their budgetary constraints. We can work on these schemes with the help of the government participation with private and NGO set ups so to provide a shelter facility to the common person of the society.