Lessons learned during real estate downtrend

Lessons learned during real estate downtrend

Real estate in Pakistan took a steep downtrend after July of 2016 (General perception). Although personally I disagree and will not really call it a downtrend rather a correction specifically in areas where we were going through an artificial boom. Highly over rated properties slumped while others soared high. Today we will be discussing the three most important lessons learned during real estate downtrend which no one tells you about.

But like any other cycle this one must come to an end and change its direction. The present economic indicators are now clearly pointing towards a real estate recovery phase.After the Karachi stock market bounced back and positive economic news & analysis all over the social media. It seems like that Pakistani economy may actually be taking a U Turn from its downtrend. Going into 2020 we can expect that real estate will also tend to stabilize itself and show an improvement.

The PKR devaulation in 2018 and 2019 followed by its stability and now resurgence also points to the same scenario and with all pieces set in place it is just a matter of time that we see real estate sector making up for lost ground as well.

Making profitable real estate investments is not an easy job and requires research and experience of how market works. The good thing however is that even the lamest of investors make money in real estate as long as they have the holding power. However those with more market exposure and experience make probably 10 times more than those without. Our 1 crore challenge revolves around the same idea to manage and maintain your real estate assets to help you grow 10 times faster than the average investor.

Now it is time to reassess and learn from our past experiences and move on and first things first lets see what have we learned so far?

Holding power is a must have in real estate

If you take real estate as gambling and try to make money while you do not have any back up plans or holding power rest assured 90% of the time you are bound to fail. Some of us make that mistake again and again, we have seen that happen in Bahria Karachi, we have seen that happen in DHA Lahore and in so many other places. Quick money may come your way a few times but if you develop your mindset like a gambler than most of you will ultimately fail.

Warren Buffett saying ” if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.” That is very much true for real estate as well.

Specially when it comes to property because a piece of land will never depreciate. You may see some decrease in price but if you have purchased a 1 kanal plot it will remain a 1 kanal plot and in my opinion the price deprecation on papers means nothing unless you sell it and only than you do really take a loss.

Similarly in an uptrend the price increase means nothing as long as it is on papers and the only time you really take profit is when you sell it.

Seeing is believing

If you can not see an asset it doesnot exist, if you are going to invest in areas which are not yet launched or developed be ready for some extra long holding periods. The success ratio in such scenarios is also relatively very low and only the experienced gamblers come out of it as winners.

During this downtrend the biggest losers have been the areas which were either non existent or underdeveloped. Real estate must be treated as a physical asset rather than just a piece of paper.

It is therefore safe to say that if you are investing in under developed areas you will be subject to higher levels of volatility. It therefore becomes more of a gamble than an investment and some times it may pay off and at other times it may not. Is it really worth the risk? It may be if you are taking real estate as a tool to earn quick money but it surely is not a safe investment.

This is exactly the reason that we have seen a surge in construction projects all over Lahore in the past 3 years. Everyone wanted to flee from the volatility and park there investments in the safe heavens and rental producing properties.

Stay away from Market noise

If real estate has failed you in the last 3 years the most important reason is the market noise. There are already hundreds of real estate invetsment options followed by thousands of opinions. This causes a lot of market noise and most people just end up confused.

For most people investment decision is based on the crowd mentality rather than logic and facts. If you are going to believe in everything written on google or every video and marketing material sent your way than rest assured that most of the times you are going to end up in trouble.

To save a couple of bucks we end up most of the time at the pharmacy rather than the doctors clinic. This is a common mistake we make everyday, go to a grocery store and you will see people asking the salesmen which is the best product. They do not realize that he has probably used English toothpaste all his life and unfortunately has no idea of finer things in life. He may be able to provide you with information but if you are looking for advise than he is the wrong person.

Similarly market noise is more dangerous than we perceive, it makes us take wrong decisions which can cost us in millions in real estate. I always suggest that the first thing you need to do is find the right consultant and the second thing you need to do is shut down your ears from the market noise, do your own fact finding and reach a logical conclusion.

Captain (Retd) Shahnawaz Yaqub Bhatti

Investment Consultant and CEO at Imlaak

Mob : +92 333 1616160 ( Whatsapp)

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