Pakistan Real Estate Market After Property Tax

Pakistan Real Estate Market After Property Tax

A lot of discussion is happening about the future of the Pakistan real estate market. This is the direct result of the Government imposed heavy taxes in the sector as per Budget of 2016-17. I really feel bad about how a lot of our real estate agents do no understand the Pakistan real estate market. Also to blame are the investors including genuine buyers who prefer non-professional services and end up losing millions. The saying “penny wise and pound foolish” sounds so true in such a scenario.

The first important thing in Pakistan real estate market is to find yourself an experienced real estate consultant. This is as important as finding a good doctor for your illness, in the hands of a wrong professional your investment is at greater risk. You may achieve small goals but you are bound to lose in the longer run. The investments which follow the “greater fool theory” are bound to face the stronger down-trend in case of slump. Only if you had read our article i posted in May 2016 predicting a major slump in Phase 9 prism here , you could have made a better choice. It is time to educate yourself and learn to make a better decision next time.

Lessons Learned

1. Be Careful When Following The Greater Fool Theory

When acting in accordance with the greater fool theory, an investor buys questionable properties at higher rates. but with the hope of quickly selling them off to another investor (the greater fool), who might also be hoping to sell them quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in prices due to sell off. It relies on the assumption that someone else will be left holding the bag when the price gets too high and the bubble bursts. Speculation based on the greater fool theory is a great way to make a lot of money, as long as the greater fool doesn’t turn out to be you.
The phase 9 prism is a classic example of “Greater Fool Theory” . In real estate the greater fool theory can drive investment under the expectation that prices always rise. A period of rising prices may cause lenders to underestimate the risk of downside. I never understand, why some one is interested in buying a 4 Marla commercial in Oval for 45 Million PKR when you could buy a commercial of equal size in better and developed areas with the same price tag.

2. Holding For Too Long Is Not Advisable

If you are playing in a speculative market , you should not hold on to your investment forever. We advised all our investors who purchased plots in 9 Prism to sell them during May and June 2016. We felt that the prices have topped and the rise from here on is just an investment Bubble . Those of you who have listened are now waiting for re-entry in 9 prism after the prices settle down for a second round of profit taking . Those of you who did not will just have to miss on it unfortunately.

3. Work Only With Reliable Real Estate Professional

While i understand that working with small agents may save money, it is not advisable . You must always work with some one who understands the market and is capable to keep your investment safe. Losing Millions to save a few thousand is never advisable . When your consultant gives you an advise please question him and try to understand the logic. It is important that you develop trust, loyalty and good rapport between and work together as one team.

4. Investment Cycles Are A Reality

I predicted a correction in the Pakistan real estate market in May 2016. Many people including investors, colleagues and friends did not agree with me at that time. Now they understand that smashing a car at a speed of 20 against the wall will not do as much damage as it would at the speed of 100. A bigger boom is always followed by a bigger slump and more damage. Read our article about real estate cycles written in Feb 2106 here.  Always remember that Slumps will always follow subsequent booms and so on.

Where Do Pakistan Real Estate Market Stand Now

There is a growing genuine need of real estate in Pakistan market. This is what investors feed on, after all investors can only make money when they sell to genuine buyers. Population growth is on a high in Pakistan . Almost 200 Million people need a place to live and call it home. The total area of Pakistan 796,095 km²   is however limited . Population of Pakistan is expected to grow beyond 300 Million by 2050 . The area however will remain the same and we do need a lot of new developments to house such a huge population.

The market is on a stand still as explained in our previous articles. However Pakistan real estate market is on a long-term up-trend and it will continue that way after a minor slump. So our advise is as under :

Sellers Do not Panic

If you have purchased a property on a higher rate do not panic and make another mistake . You probably purchased it to keep for long-term but seeing the market condition you want to sell it and get out . This is exactly what can cause a steep market down trend. You need to stick to your earlier plan when you purchased it . Those who purchased at high price in 9 prism should stick to it and hold what you have.

Just like a speculative uptrend , a downtrend can be speculative too. I do see the prices of 9 prism above 200 Lacs in 3 years on genuine demand . Commercial plot prices will also go higher than what they were now . One bad choice does not mean that you have to make another bad choice . Hold on to what you have and stick to your original plan .

If you have not purchased it on a higher price , it is time to get out and re-enter at a later stage. Move to a genuine developed area for the time period . However you can also keep and hold it after all we all know it will go up again sooner or later.

Buyers It Is Your Market

If you missed the earlier train , this is the best time to get back in the game. Prices will retract to what they were a few months ago . The market will correct itself and settle at a higher low . Get in and hold on for a year or two depending on where you want to invest.

To know where you should invest now please read our article on monthly market analysis for August 2016 here. Remember this is now a medium and long-term buyers market and short-term gains will be hard in a slow stable market.

Captain (Retd) Shahnawaz Yaqub Bhatti

Investment Consultant and CEO at Imlaak

Mob : +92 333 1717170 ( Whatsapp)

Skype : Shahnawaz.yaqub

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