Mar 9 - 15, 2009

Around the major cities nationwide, construction projects are moving not at a pace that was evident until the start of 2007-when mortgage downturn simmered in USA. Along with security and political disturbances, global economic crisis has played its role even if slightly to debilitate construction development momentum in Pakistan. Extremely cautious investors spring up as a result. They are inclined to zero in on local conditions as much as they are weighing profit margin against risk of lack of or no foreign participation while embarking on any costly adventure. The effect is translating in to parched market value of estates. Since Karachi has been the epicenter of exuberance in real estates market, it has felt hangover perceptibly.

A Karachi-based realtor in trading of properties in Gulistan-e-Juahar, Baldia and Surjani towns said roughly an average 50% decline in prices of properties occurred so far. The investors put hold on their money and are waiting for return of normal conditions, that once restored will bring back golden age in real estates market, and "you won't find a plot or house at low rate in Karachi", he opined. They have lot of money, he replied to a question referring to investors. "Their wealth was revealed upon us when we started online real estate trading (internet advertising) in the downtown of Dubai," retold a Pakistan-based real estate dealer who had channelized investments from Pakistan in housing units and commercial properties in Dubai. In past, investors from Pakistan were inclined to invest in Dubai realty. The lull in real estate in interlinked realties has dithered away investors for the time being, told the emigrated realtor to this scribe upon his recent visit to Karachi where he originally ventured real estate business two decades ago. 'But, market will definitely rebound.'

Approximately $75 billion construction projects in Dubai have been renounced due to wave of global economic crisis, according to a report by HSBC. Drop in sales and stringent financing caused the shelving of developments by developers, it says. This was a 60% of projects carried out by different developers, which have lessened to 427 from 800. Most of these cancelled projects were commercial and residential developments. Financial uproar has also hit the supply of housing units in Dubai. Out of total 875 projects registered with Real Estate Regulatory Agency of government of Dubai, 25% would be delayed, according to RERA's forecast. The agency predicts that only 25% of projects will meet completion schedule by 2009-10 and mergers of developers. Mainly three government-backed developers: Nakheel, Dubai Properties, and Emaar wield control over the supply of 70% housing units in Dubai. One of them has entered in construction of commercial and residential developments with Canyon Views in Islamabad and Crescent Bay in Karachi.

On shores of Arabian Sea, Emaar launched the 75-acre development of 4,000 residential apartments in the mid of 2006. Booked through balloting residential apartments with a reported individual cost of Rs.20 million were out of stock in spur of starting moment of balloting in the beginning of 2008, paper of which was reportedly sold at a rate umpteen times more than its denomination. Crescent Bay has spiked values of estates in Defence phase VIII, where the project is located and a portion that truly guides the mood of prices of properties around the vicinity. A real estate surveyor says prices of properties in Defence are decreasing owing to brake in upward movement in values of properties in DHA-VIII. "The development in that area determines direction of market values of surrounding that has right now in a scale of decline and stagnancy," he says. He attributed political uncertainty, dreary prospect of nation's future, atmosphere of distrust to retraction of investments from estates.

Properties are facing similar trend across the nation with prices variation in percentage terms from area to area. Karachi where prices of properties were skyrocketed manifold until mid of 2007 witnessed realtors striking their flags at the prospect of fleeing investors afterwards. It is relevant to recall the identical slump in real estates market back in yester century when people were selling their estate holdings at throwaway prices to have positioned assets in banking and capital securities. When selling spree exhausted finally prices of estates were ratcheting up to unpredictable degree. Ironically, returns on savings also became unattractive and stock market plunged to unprecedented low-level in the ides of March 2005. The present situation is of dissimilar nature so much so that this time buyers aside from needy one are in a state of hibernation. However, resemblance models that national saving scheme again is becoming investment conducive and rate of returns on banking deposits striking.

High cost of financing has also distanced investors from real estate market in the country. State bank of Pakistan increased lending rate on short and long-term borrowing to control unabated inflation that still hovers average around 20%. Bank finances have been exploiting by real estate developers in purchase of high-end estates. The bank loan also remained easy and cost effective source of investing in properties for both commercial and non-commercial purposes. However, surge in interest rate made this source of financing ineffective. Since residential housing loan (mortgage) has never been popular in public, interest rate spike cannot be blamed for widening gap in housing demand and supply in the country. While State bank has conditioned decrease in interest rate with correlated fall in core inflation (non-food, non-energy) that stood at 18.9% in January, high cost of housing is signaling difficulty in arresting core inflation in long term. This cost can be reduced both by supply of housing units and ensuring nominal rental abodes.

Generally, realtors, investors, and developers in Karachi, Lahore, Islamabad, and other major cities of Pakistan are taking safe steps to prevent investment losses. On the other hand, they may have seen silver lining behind real estate slump. Storing of low priced plot, cement, and steel will be of future benefit for them.