Pakistan Property Market after Interest Rate Climbs to 10%
Pakistan State Bank has increased the main policy rate by 150 basis points. So the interest rate has increased to 10% from 8.5%. The interest rate has been increased to control the rising inflation. The hard decision was expected as PAK Rupee hit the record low against US Dollar at 144. This blog describes the expected behavior of Pakistan Property Market after Interest Rate Climbs to 10%.
Interest Rate Impacts Real Estate Prices
When interest rate increases, banks give more profit on the saving accounts. So people sell properties and deposit their money in banks. The massive sale of properties results in capital flight from reality sector due to which property prices fall.
On the other hand, when interest rate decreases, people get fewer profits on their saving accounts. So people withdraw money from banks and invest in the reality sector. In short due to the decrease in interest rate, investment in the reality sector increases which leads to property price rise.
Impact of Interest rate on Pakistan Reality Sector
Pakistan has observed two real estate booms. The first boom lasted from 2003 to 2006 and the second from 2013 to 2016. The reason for both real estate booms was the record low-interest rates at 7.5% and 5.75% respectively. During both real estate booms, people got fewer profits on their saving accounts. So people withdrew the money from banks and invested in the reality sector. Whereas each time property prices crashed due to the increase in interest rates.
Present Real Estate Market Trends
Currently, property prices in Pakistan are crashing due to crackdown on black money, non-filer buying restriction, Naya Pakistan Housing Program and NAB’s action against illegal housing schemes. Since the approval of budget (3 October 2018) 1 Kanal plot prices in DHA Lahore have decreased by 20 LAC. The real estate transactions are the record low and many dealers are closing their agencies due to record low incomes. It's very hard to find a filer buyer so sellers have been forced to reduce the property prices.
Future Property Market Trends
Pakistan Property Prices are 35-40% down from the peak of 2016. Now as interest rates are increasing, so the price fall will gain more momentum in the coming months. All events are pointing towards Dubai Style property price crash in Pakistan. Pakistani reality sector is an alcoholic of black money. Without black money, we can see the price slide in Dubai. If property prices can fall by 75% in Dubai then the same can happen in Pakistan.