KARACHI, Oct 9: The State Bank's recent directive to check speculation in real estate prices has made a psychological impact on the market, resulting in price decline of open plots by five to eight per cent in two particular phases of the city's most posh area.
However, the rates of bungalow and apartment have not changed, estate agents claimed on Saturday. But some estate agents said that the price of open plots have not fallen yet in two phases but the SBP's decision barring banks from providing housing loans exclusively for purchase of land will definitely make a negative impact on the booming open plot rates.
The Defence Housing Authority (DHA) market, dubbed as investors' paradise, has now become quite lethargic in terms of sale and purchase of plots as a result of SBP's move coupled with DHA's decision taken in September of imposing development charges from October 1, 2004 on Phase VIII and VII extention.
On 500 yards plot, development charges comes to Rs 500,000 per square yards followed by Rs1 million on 1,000 yards and Rs2 million on 2,000 yards plot.
The dullness of DHA market can be gauged from the decline in transfer of documents (buying and selling) of open plots to 30-35 per day currently at the DHA office as compared to 100 in early September.
It does not mean that the investors have disappeared from the DHA market, but their numbers have declined.
"The price of open plots in DHA Phase VIII and Phase VII Extension has plummeted by five to eight per cent," Owner of Pak Estate at Clifton, Khan Zubair Shaheen claimed while linking the decline to the SBP's move.
He said the price of bungalow and apartments have not fallen in DHA and Clifton area. He also claimed that the rates of open plots in DHA Phase V, VI and VII are still at old high rates.
"I think that the investors' presence in DHA Phase VIII and VII extension has remained at one third these days as compared to a month back," he said while forecasting a negative impact in the entire DHA market in days to come due to State Bank's new rules to check speculation in real estate.
SBP on October 4 had also urged the banks to offer housing finance for buying land only for construction. Banks and development financial institutions (DFIs) have also been asked to give housing finance in tranches up to 50 per cent for purchase of land and the rest for construction on it.
Prices of land in posh areas have surged by 45-100 per cent within nine months to September 2004.
Khan Zubair said that genuine dealing among genuine buyers is taking place in the DHA but speculators are very fewer in numbers.
"I think that the transaction in the DHA market will remain at low ebb for another two months," he said adding that investors, who are now watching the situation from the sidelines, will again take a plunge after a few months because they have no other lucrative and sound options like real estate to cash their luck. Currency and gold have never been investors' top most priority as compared to stocks, which still an area of some interest for them.
On the other hand, the hoopla of Dubai and UAE property markets, which have emerged as a new horizon for investors and consumers, is reported to have somewhat lost its attention since the Prime Minsiter Shaukat Aziz has formed an inter-ministerial committee to probe and check the capital outflow from Pakistan through exchange companies to these markets. There are reports that some $150-200 million have been going out from Pakistan per month since these new investment options in Arab countries have emerged.
However, estate agents said that Dubai and UAE property markets have nothing to do with the decline in open plot rates in some specific phases of DHA. Even its impact has not been felt yet in the prices of bungalow and apartments.
Proprietor of Parekh Estate, Abdul Wahab Parekh, said that the sale and purchase activities in DHA Phase VIII and VII Extension have become quite calm these days and only 30-35 documents of open plots (buying and selling) are being transferred at DHA office as compared to 125-140 three to four months back.
Phase VIII is full of open plots while 50 per cent plots are waiting for construction in Phase VI followed by 30 per cent vacant plots in Phase VII. There is hardly five to 10 per cent open plots in Phase V.
"The prices of open plots in DHA Phase VIII and VII Extension have not dropped," he claimed. "The price could fall to a maximum of 10 per cent in future due to State Bank's decision," he said adding that the overall decline in prices may reach to 15-20 per cent in future if both the SBP move and the DHA decision of demanding developing charges are taken.
He said that SBP decision has yet to make any big impact on other areas and prices are still flying at the old levels.
It is hard to predict that the property prices, which have gone beyond affordable levels, will ever return back to its two years earlier levels. Once a price of real estate jumps at phenomenal level, it hardly falls with the same intensity.
Many market players think that there is still a room of some technical correction or psychological impact on prices in case the central bank or the federal government continue to arrive with new rules and regulations to check speculation and artificial jump in property rates.
One thing is certain that investment in property and real estate always brings a good return and pay back in the long term world wide. But perhaps Pakistan particularly Karachi appears to be an exceptional case where investors get unimaginable returns in just a single day, few days and in few months.
The government has come out very late in tightening rules to check speculation for which genuine consumers had to pay phenomenal prices to buy houses and bungalow at unaffordable and artificially rising rates.