After election effects on Real Estate and expected policies of the new government
Finally the elections are over. PTI has emerged as the single largest party in Pakistan. There are pros and cons attached to the win with consequences positive and negative expected on the real estate market.
It seems that the government is willing to form an alliance with different stakeholders in order for clear majority. After the elections we expect the new government to better the economic situation of Pakistan. The major hurdle that the new party will face is the economic crisis that PML N has left behind. It happens in every term that your foreign reserves are left almost empty with huge debts hanging upon the nation. The last government has left a mountain of debt on Pakistan.
The negative impact that the government if formed by PTI will be multiple. The positives will outweigh the negatives but it’s important to discuss the negatives first.
The new government will definitely increase the tax bracket, this means that it will become difficult in times to come for non-filers to procure properties. The new government is expected to increase taxes on non-filers as well with respect to real estate. The DC rates as well as FBR rates are expected to reflect market rates in times to come. This would mean that the taxes will have to be decreased as is the case in the rest of the world. This was announced in the last budget, but we will surely see its implementation in times to come.
Forex rates have gone down, this means that there is positivity with respect to the new government. The uncertainty with respect to elections has surpassed, this will ensure a stable economy in times to come. Dollar rates going down would mean that the inflation will go down with it. We have a huge trade deficit which needs to be addressed. PKR will continue to grow strong and with it the purchasing power of people will go up.
NOCs of various societies which have been issued through bribery or relationships with people in power will be questioned. Any society which has not paid its fair share of taxes or has any discrepancies will be addressed by the new government. This in turn would mean that the rates of some of the private societies will go down significantly. This might be reflected in most of the private societies in Gwadar. It is recommended that one treads very carefully whilst investing in private societies all over. There has always been a risk factor associated with private societies, but anyone who has been avoiding or hiding from the law enforcement agencies would be caught.
Bahria Town if there books are not crystal might come under scrutiny as well. They have faced problems with the courts in the past as well, the recent being the ban on transfers by Karachi court. Although the ban has been lifted, they would need to get things in order. Strong audits of each housing scheme are expected including Park View Rawalpindi.
As the instability of the government factor is out of the way, things begin to normalize. PTI has a lot of expat support. People all over the globe are in favor of PTI. This will mean that investment from overseas Pakistanis will increase. This is bound to go up steeply. This is a major factor which will help the property market. Prices of real estate in Pakistan will increase over time. After the oath taking ceremony of the new Prime Minister I expect that real estate investment will go up to $ 2.5-3 billion in the first year. It has downgraded to $ 700-800 million dollars from $ 2 billion in 2015.
Real estate investment from overseas Pakistanis and foreign companies was 25% of the total remittances of $ 8 billion back in 2015. This would increase sharply from the current figures.
Overall the market is expected to improve in terms of investment as well as property going up. Just be careful whilst investing in private societies. The goal here is to procure a real estate investment and hold on to it for at least a year.
Managing Partner Imlaak
MBA Finance (Cardiff, UK)