Global financial crunch hits real estate sector: The News

Sunday, December 28, 2008
By Faryal Najeeb

KARACHI: Year 2008 has proved to be a rather rollercoaster ride for the real estate sector. It started off dismally in January, following massive flight of investment after former premier Benazir Bhutto’s assassination and then underwent global financial crunch. However, it ended on a positive note as many new projects for the middle income group were introduced. Meanwhile, local investors, though severely wounded by heavy losses, also returned to Pakistani market from United Arab Emirates by October. Nevertheless, market experts were of the opinion that the year could not be considered positive for the sector as the damage done was far more than what was recovered in the past two months.

“Interestingly, though the commencement of the year promised little following the tragic incident on December 27, 2007 and it seemed to be the worst period in the history of Pakistan, average price of properties remained higher than what they had been when real estate recession started back in 2005,” stated Head of Real Estate Research at PakrealEstate.com, Shahbaz Mukhtar. Mukhtar said that property prices in Lahore, Karachi, Islamabad and Rawalpindi were in fact 20 to 25 per cent higher compared to 2005 when the real estate sector recorded its first downward slide.

Citing examples, he shared that in 2005, a 500sq yard plot in F7 area of Islamabad cost approximately Rs30 million whereas in 2008 the same was estimated at around Rs45 million. Mukhtar went on to say that apart from natural appreciation over time, the development that took place in an area also mattered greatly for property evaluation. He gave the example of DHA phase VIII Karachi where a little development over months led to prices actually dipping in 2008. Going over a period of five years, Mukhtar said that a 500 square yard plot in phase VIII cost Rs1-1.5 million in 2002, which soared to Rs10-12 million at its peak in 2005. He said as the DHA failed to maintain the development progress, today the same property is valued at Rs6-7 million only.

The real estate researcher also enunciated the Islamabad rental market stood humble in 2008 as the demand by foreigners reduced as most moved away to the ‘Diplomatic Enclave’ established for them. He said acts of terrorism in the year had also compelled many of them to move away from the country leaving the houses empty behind them. “The rupee-dollar parity also affected the rental market of Islamabad as the rents were in fact decided in dollars only,” he elucidated.

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