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Faisal
( 10 posts )

[54 Replies]
Hi Guys.

I live abroad and work with investment banks. I was here when real estate bubble burst in USA. But in Pakistan it still have to burst. Reason for this is people in Pakistan are not ready to accept it and not reducing prices as other countries did. Average house price is reduces to 50% from its original value. here since people buy property with loan and bank look at property before signing loan they are the one who put price for house. you cannot tell bank that property is 7 million so give me loan for 7 million. banker come over see property and tell that this worth not more that 1 million depending on neighborhood and house condition. Now in Pakistan there is no such things and people are not reducing prices as they should.

I give you simple example. lets say a piece of bread cost you 1 rupee. now people buy and sell it ahead for 1 rupee more and keep doing it over and over again till the same piece of bread prices reaches 100 rupee. but at that point no one wan to buy that for 100 rupee . now this guys who is holding this piece of bread is screwed cause there is no buyer as everyone know that actual prices of that bread was 1 rupee. this is the point when this bubble burst. No people who are sitting on 5 crore rupee property don't realize this phenomenon.

They have to understand that there is no 6karoor rupee buyer and not even 1 crore rupee buyer. They can either get rid of this bad asset for 2 crore for liquidity and take it as a loos which is normal thing in business if they don't this loss will keep increasing and not only that but there liquid asset "cash" will not be available. Of course they cannot eat their house. they need liquidity to buy other necessary of life. Here is real time example of mine. I was planning to buy house in Islamabad in March 2008 when real estate bubble burst. colleagues were telling me this is the time to buy. I said lets wait and this is long term phenomenon for bubble to burst at least 5 yr. so i have 200,000 dollar. I said okay let me sit on it.

I check house prices in Islamabad 8 marla house was for 2.5 crore. now this was 2008 and dollar was for 65 . if i would have bought house than i would have to send around 380,000 dollar. but i waited and dollar keep on going up and now after 4 yrs dollar is 95 and i am sure its going for 100 in next 2 months. so now if i have to buy i only have to send 263,000 dollar. i save my self 100,000 dollar. lucky me. but here comes the funny part. they guy who was selling me property for 2.5 crore came down also but only 50 lac. He is loosing but loosing minimum. he is not accepting that asset he is sitting on is crap.

I can now easily buy bigger house in NYC where I have lots of job opportunity, subways , buses, healthcare, security. they why in the hell i would buy house in country where there is no electricity, no security, no judge and no justice. sorry i spell it wrong it should be JUST US! not justice. Justice in Pakistan is only for JUST US! well my humble advise to people who are sitting on big assets is come to reality reduce their prices at least 60% and take loss and get rid of Pakistan.

Sitting on same house over a long period of time will only decrease its value. Allah helped me and save me from making bad investment. May Allah help people to these investors and bring them to reality also.

861 days ago In General Advice
Post Answer
Arshad
(476 posts)
You fail to take into account inflation. In Pakistan even if the prices are not droping, if you take inflation into account the prices are half of what they were say 5 years.
861 days ago 

MBS
(828 posts)
Quite a fair analysis. the prime reason is investors here are mostly local, irrational and have conventional sentiments about real estate.

After the recession of 2008, real estate prices were reasonably corrected in big cities but if you check in smaller cities, they remained intact, again for the same reasons you explained, Not ready to accept the facts and being un-informed of market dynamics and theoretical principles.

So you're right that this bubble should burst. But in all economic or financial theories/principles or rationals, SOCIAL BEHAVIOR AND CULTURE are always taken as Exceptions which can lead to illogical market conditions.

And one more possible reason for slower decline in real estate is that people don't have choices for investment due to energy and security crisis. So they tend to buy plots to get a feeling of doing something at least.

I think it will take quite a few years for Pakistan to get along with international market dynamics. And probably by that time, our population would have soared to another 20Mn, so number of end users will sufficiently increase to occupy this under-development land. :) whereas birth rate is around 1% in west.

So, bigger and ever growing population has some benefits too

Economics is interesting, infinite possibilities.
861 days ago 

Faisal
(10 posts)
AOA,
@Arshad

Inflation by definition means expansion of money supply by govt. More money govt print more value it loose in purchasing power but core part of inflation Does not include house prices. It include food and oil on which a country run. Here in USA we've seen 2 to 3 percent inflation but only in food and oil.

Rest everything else is deflating. Houses prices have to come down least 60 percent for market to move on else government have inflate money bubble as its already doing in Pakistan. Remember any thing in excess loses it value. Same is for money and houses. We have over constructed in last decade. Supply and demand got totally messed up.

There is so much supply but now due to high prices demand is low. To have demand back again people need to be convinced take a loss and sell it . Liquidity is core of business fundamentals that's why.I keep my assets liquidated to run business here. I guess investors in Pakistan don't know 101 of business.
861 days ago 

Arshad
(476 posts)
I am not sure what you are saying. What I was stating is that say a plot is worth 1 million rupees in 2007, now 5 years later price may not have fallen as in the U.S but it has not gone up either in Pakistan. So in relative terms prices have fallen in Pakistan, as your 1 million now would only have half the purchasing power of the 1 million that you would have got in 2007.
861 days ago 

Faisal
(10 posts)
OH you mad my point there. so purchasing power went down not because more money got printed income did not increase as it should with inflation. so people now have no money to buy and that exactly we call inflated bubble here and that eventually leads to crash. I know many people in Pakistan who invested in plaza and big building now there whole money is stuck in it. they invested 100 crore. wanted to make 150 crore but now no buyer. so they are almost on the streets. but funny part is they are not selling it for 75 crore. I am sure if they make it 75 crore it will go out like hot cakes.

With 75 crore cash they can inflate some other bubble lets say gold. but they are not understanding it this concept. Rotation of wealth is very important for the existence of any economy. For now the money is stuck in Bricks and clay in the form of house. Although Gov is printing money and making it even worse for common person the prices are still not going up as people know that its not true price of the land. I know some investors in USA who wanted to invest and they are very discouraged now. they start buying back in USA as they said price is same there and here then why buy there where no opportunity, no security, no justice and JUST US! so when we compare prices between 3rd world country like Pakistan and USA it make no sense that prices are equal for same size of land.

Its duty of real estate people to give common people right advise that they have to take a loss or keep sitting on it and wait for more decline in property values. Further deteriorating conditions in Pakistan will only add fuel to fire. Honestly speaking i spoke to people living in USA if they planning to buying in Islamabad the answer was same its too expensive there so we are buying here in USA as its cheap here. Which is shocking to me.
861 days ago 

MBS
(828 posts)
I was trying to say that you are right that the real estate bubble should burst like in all developed countries however the economic, political and cultural situation is different in Pakistan. Therefore this bubble may not burst until one or more of the above stated factors change.
861 days ago 

MBS
(828 posts)
Secondly for a dual national its optional to invest in Pakistan whereas for Pakistanis there is no room to manouvre.
861 days ago 

Salman
(81 posts)
The dynamics over here are different. for example the prices in peshawar (hayatabad) are more than e-11 in islamabad. the reason is that due to operation all the ppl from FATA have brought their investments to peshawar. i am 33 years old and since the inception of hayatabad i havent seen even a single time the prices coming down. they do halt for a short period though
860 days ago 

Rizi
(122 posts)
Very good analysis.
860 days ago 

OKha
(152 posts)
@Faisal

I agree with you. I myself have been saying just this on this forum but what I think the values of properties are already going down automatically since the last 5 years as they are not increasing and are remaining almost constant while the USD has increased more than 50% as compared to the rupee and inflation has increased at the same rate. Anyway you are right the properties are still too expensive and have to come down more 1Ct, 2 Cr , 3 Cr , 4 Cr ++ for a poor country like Pakistan is just too much!
860 days ago 

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