REASONS OF STAGNANT PROPERTY PRICES
July 2 - 8, 2012
The real estate business in Lahore is now dependent on high-end direct consumers and genuine long-term investors as speculators have been eliminated from the local real estate market due to almost stagnant property rates.
The soaring inflation, devaluation of local currency and economic recession in different parts of the world are stated be major reasons of stagnant property prices.
A real estate agent Umer Draz told PAGE that the low and midsized property buyers are not left with consumable surpluses to go for house construction as in prevailing high inflation and doubled rates of construction material they cannot dream of planning a house of their own.
According to him, consumption of cement is the main barometer of construction activities in a country. Domestic cement consumption has remained stagnant while the real estate industry has also remained stagnant as far as construction activities are concerned.
Majority of the activities are in top housing schemes are taking place. Luxurious enclaves being built around golf courses is a new phenomena in Pakistan, he added. He said these luxury villas are extremely expensive but there is no dearth of buyers.
Lake City Holding Chairman Ejaz Gohar said, "As builders and real estate developers, our aim is to get our schemes populated as soon as possible". He said in recent years there has been more demand for luxury villas and larger plots than small houses and smaller plots.
He said the houses around golf courses are more expensive because of the cost incurred on the development of the golf course and large area of land related to it. He said his company would have earned more by developing small 5-10 Marla plots but there are few takers for these in the current economic depression.
Gohar said the moneyed class now desires to have the same ambience and atmosphere that they observe during their visits to the developed countries. "They are willing to pay for the luxury," he added.
Those associated with construction business said that 25-percent of the construction cost goes to the government exchequer in form of different taxes. They said, "the real estate is the main source of our foreign exchange earnings."
According to them, property rates in established high-end residential properties have surged by 10-15-per cent in last one year while the appreciation in low-end areas is restricted to 5-percent.
They said the government should encourage construction on plots. The most prudent way to encourage development is to sell transparently a portion of each government scheme to private developers with condition to build within a specified period failing which they have to vacate the land with some fine, they added.
They said there was a time when the real estate developments in Lahore were based purely on providing housing units, with little regard for any other facilities. The military-owned Defence Housing Authority began offering a few improvements in infrastructure but the trend did not catch on until the late 1990s, when Bahria Town began offering 'lifestyle real estate'. From then on, a trend started that has continued since. Other than this, another boom to the real estate market was the migration of people from across the province looking for a safe haven in the wake of rise in criminal activities.
Bahria Town is the second largest housing society after Defence Housing Authority in Lahore. However, the property magnate backed-society has become the preferred choice due to its unique and international living standards.
Prices of land and houses have been stagnant in DHA while Bahria Town prices have declined. Majority of the growing middle class is investing in Bahria Town as it is much cheaper and provides more facilities than DHA.
As per a report of the Pakistan Real Estate Report, the financial year 2011-12 remained challenging for the protagonists in Pakistan's commercial real estate sector. Rents have fallen in Islamabad and Karachi (although not, apparently, Lahore) and across all three sub-sectors. It also appears that there have been sharper drops in prices and capital values, with the result that yields have in some cases increased. The fundamental problem is a lack of demand from potential commercial tenants. The dangerously unstable political and security situation has resulted in the overall level of demand for commercial space falling well below what is available. Cut in stamp duty, CVT, and sales tax from housing sector can give a boom to real estate sector.