Economic factors and property

Other & Misc Comments
#1

The effect of various economic factors on the real estate market such as interest rates, inflation, currency valuation, taxes, alternative assets such as stocks and gold etc. Can have a significant effect on the real estate market. So I have decided to start a new discussion where we can exclusively discuss these factors and there possible effects. The purpose is to discuss impact of economic factors in general and not with respect to any individual housing scheme.

As a start, I would like to say that there is a 50% possibility of a rate cut by state bank in its january monetary policy meeting. What could be the effect of a further decline in bank rates along with a gradual strengthening of rupee against international currencies taking place right now? Does this not make pakistani real estate more attractive to investors given a full year of price correction?

#2

Personally I think overseas Pakistanis living in Europe will not be viewing the current situation very positively unless they are already invested in local real estate. The dramatic strengthening in value of rupee against both the pound sterling and euro has reduced purchasing power by about 10-15% for those who were earning in these currencies. Infact one respected member Sayeein sb has forecasted that there could be even more pain on the way for these people.

Those earning in dollars/dirham/riyal are probably in a better position to take advantage of present situation. But overseas people will only start investing after local investors regain their confidence first.

#3

Well then that is all the more reason to hold assets in a currency which is expected to gain strength. Although I must caution that there is some talk going on among banking circles of a possible controlled devaluation of the rupee by state bank over the next few months. If this policy gets approval, the interest rates may not be reduced further.

Over the past few months gold has completely fallen out of favor with investors. It is likely to remain that way for sometime. Stock market is already too high and certainly not suitable for small to medium investors. Some thing has got to give, investors cant sit on their money indefinitely.

#4

If interest rate decreases significantly, to boost the economy as was done in Musharraf regime. Definitely people have more economic benefits and even can get cheaper loans for house construction/buying. This will generate more local demands for housing. House rent are sky rocketing these days in settled areas of RWP/ISB. This all depend how government proceed further on political/economic fronts of country.

#5

@Raza. If you think there is a possibility of devaluation of rupee what would be your advice to ppl holding cash both in rupees and some FX, is it time to sell pounds/dollars for rupees or is it better to buy more FX (if yes which currency?) to preserve your savings? Don't you think if things start moving in FX markets that is where big investors will play their next game?

I would also be grateful if Sayeein sb or any other knowledgeable member can also comment on this. Thanks.

#6

@Kashif. The rumor about some price fluctuation stems from the fact that some major players are now looking to repatriate their money which was invested abroad after those markets started slowing down especially in Dubai. We will know about that for sure by the end of this month. Its true that if forex market, which at present is being very tightly controlled by the government, starts moving, a lot of satay baz will jump in. My suggestion would be to wait for at least a week before making any move to buy or sell.

@Nasir. I don't think Pakistan real estate market is much dependent on mortgages. The market gains by low rates due to the other side i.e. Reduction in profit rates for depositors. If a big investor starts losing money due to lower returns, they withdraw that money from banks and start investing it, which in our case is usually in speculative areas such as plots. But we still have to see if the state bank is willing to lower the interest rates further, because the reduction in petrol prices has not resulted in a deflationary effect.

#7

Dear All respected members.

Very nice topic for all and for overseas Pakistanis, as we all know now that RS is gaining strength against FX. If some one wants to buy or invest in PAk real estate Now.

Shall wait or go ahead. Coz I have seen for example in UK pounds the rate is on decline like from over 160 to now RS152. Will it? decline more stable or pick up again.

And also any predictions real estate will be stable,decline or pick up in 2015....

#8

@Raza

you are right. When interest rate lowers, people dig out their money from banks and put into other sectors (same but opposite the concept of inflation control). When Interest rate reaches equivalent to rental values, poeple start obtaining loan for house building. High interest rate in 2014 resulted 50% reduction in loaning then 2013.

When rupee values reduces, it enhances the exports and values of goods, which also positive effect on economic growth, but at same time increases inflation and high cost on imports. So if foreign reserves are strong and inflation in control govt. May go for slashing interest rates and devalue of ruppee.

#9

Well I am stuck with a few thousand pounds that are losing value almost every day. But I can hold my position for now. I am just wondering if I can invest more money in some other currency which will help to balance out the loss. What would you suggest about the Dollar? Some other members have been strongly recommending the dollar.

#10

@Tamim & Kashif. If you are looking to make FX gains in the local market you need to understand well how the local market works. In Pakistan, dollar being the reserve currency is tightly controlled by state bank. So you will see that changes in value of dollar in international market has little or no impact in our local market, as value of dollar is regulated. For example dollar has been rising dramatically against all major currencies around the world but its value has been falling against the rupee.

However, other currencies are unregulated which means their rate is determined by their relative value against the dollar in the international market. Pound and Euro are falling against rupee because they are falling against the dollar, which is more or less stable against rupee. So their future value entirely depends on what happens in the international market, whereas value of dollar is determined by state bank. Next monetary policy announcement date is January 15. Till then it is better to wait.

#11

Pound and Euro will struggle against USD in 2015…federal reserve has already ended QE3 last year and expected to increase interest rates in mid 2015…which will impact in USD gaining more strength…But for Paksian Rs is expected to remain stable against usd in 2015 mainly becz of lower oil prices.

#12

Strong dealer and banker mafia and much influential as, despite the huge pressure from industrial sector, no one willing to substantial reduction in interest rate. But now due to slow down in economy and decreasing oil prices and fear of reduction in tax money, may decide to reduce interest rate to expedite economy and taxes.

#13

It seems the government has decided to rev-up the economy by slashing the discount rate by another 1 percent. The rate is now low enough to have an impact. Banks and national savings will revise their rates from next month and after that the effects will slowly start becoming visible.

You can also see the slow depreciation in value of rupee taking place. Market expects rupee to trade around Rs 104/dollar by June, but there could be some fluctuations, which state bank will control. Overall, I believe it is positive for the overall economy.

#14

Govt decision to lower interest rates is expected to create bullish pressure on prices. But Allah knows best.

#15

Yes the rupee has started falling. But what about the effect of interest rate? When and how will its effects show? My worry is that instead of doing anything good for property, it will only make our public opt for more car financing and clog the roads.

I think government should either ban car financing or set a higher rate for it.

#16

@Awais. The rupee devaluation, although slowly in progress, will not be sharp, most people will not even notice it. The lowering of the discount rate is already having an effect on the stock market, which currently remains a favorite due to the extension in tax amnesty scheme. On the other hand, property market is getting hammered with new taxes and sharing data with tax hounds.

Nevertheless, due to the technical nature of stock markets, I am sure most investors would still opt for real estate. Ever since banks started sharing depositor data with FBR, ppl have withdrawn huge amounts from banks. They can't keep all that in lockers. It has to be parked somewhere safe.

Car financing is unfortunately popular with many young salaried individuals, who instead of choosing to save and invest for long term, prefer to become a part of the rat race. Banks are quite happy with car financing schemes because of huge profit potential and minimum legal complications. It will surely continue, in fact banks are already seeing an increased interest in this segment.

#17

There is some movement in the FX market today. Both pound sterling and the Euro are trading at much improved levels from last few weeks. Both currencies are favorites with big investors in Pakistan.

#18

Pakistan needs to further cut its interest rate so that it matches with India's at least. A slightly lower than India's will attract international investment which otherwise chooses India.

euro/pound are very risky at the moment. But yes with more risk, there is more reward.

#19

At this moment Pak rupee is far more favorable than pound/euro provided no war breaks.

in two years I believe it will be around 80 againsy USD. $

#20

@Sayeein. Rs 80/US $ ?! Sir ye aap kya forecast kar rahe hain, because everyone else seems to think that it will eventually start to devaluate, I mean the Rupee. I only want to know which forecast or analysis is correct.

Main question is what is good for property, increase or decrease in value of Rupee against dollar? My impression is depreciation is better because it increases buying power of overseas Pakistanis.

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