Impact of Ukraine war on property market

Buying Property General Advice
#1

Russian invasion of Ukraine has entered in its 2nd week and Putin is showing no signs of slowing down. World economy is at the verge of major shake down and oil prices crossed $117 today and expected to continue upward stride as White house is considering putting a ban on Russian oil. Tumbling currencies are compounding the crises.

Amidst all this, Pakistan was caught on the wrong foot shaking hands and taking photo op with Putin on the day war started and then refusing to denounce russian’s invasion and voting against it in the UN. A perfect recipe for disaster as Pakistan’s isolation by the west will further intensify. Khaya piya kuch nahin glass tora bara anay.

How do you guys see this situation will impact our local property market. Both in terms of global economic crises arising out of Putin’s invasion as well as looming threat of Pakistan’s isolation by the west due to our misplaced stance.

Also, our economy is fast headed towards major crises. Current account deficit has widened to whooping $11.6 bn in Jan. – on track to reach $20 bn by the year end, In a popular move govt has lowered oil prices and vowed to keep it constant till June whereas the global prices are skyrocketing. There is yet another amnesty scheme, only this time for industry, that will possibly drain investment in property sector.

So what do you guys think?

1 Like
#2

my observation in last few crises is that all private societies stops growing but CDA and DHAs developed areas attract more customers, so I think private societies may not get rapid gains but CDA and DHAs will keep growing.

#3

Global Context:
One of the most genius moves in a capitalistic world is US success in turning the USD into Global Cash and as means of trading. Whenever crises occur USD gorws and import driven economies start to take big hits and PKR is a prime example. It will hit residents purchasing power but will help overseas savings so a miss for many, hit for some others.

Local Context
Inflaton is already at 12.2 compared to the Global Average of 4.4. Rising Petro, Gas, USD prices will further escalate Inflation. However, in PAK, an average Pakistani (the backbone of the economy) don’t have much options. Either do a Job, run a business or invest.

Investment Options
Stocks (highly fragile) and Real Estate are the most prominent options. People even having a saving of 1/2 lakh find it more comfortable to buy some file rather than to invest with someone business and get it stuck. So, it will affect but for me not that dramatic impact.

Ground Reality

Pakistani Awam be like:
Aag Lagay Basti Main (Global Conflicts), Hum to Apni Masti Main (Good Deal, Pick up 2 files)

====
Correction: In UN, PAK, Abstained rather than Oppostion.

#4

A very good topic and nice to see such mature/educated discussion going on (rather than gali galoch, saas bahu tanay etc).

I don’t think this war will have a major impact on the real estate sector over here, unless it becomes bigger and most of Europe/West gets involved but even then overseas Pakistanis will quickly shift their savings to buy real estate here. But what is going on inside the country, I think there will be a lot of inflation in the coming months and when inflation rises, property prices will rise as well.

The current security situation inside the country is not good and this will also have a small effect on nearby areas locally. You are right about international isolation/sanctions due to wrong policies but it won’t have much of an effect on real estate in my opinion.

At the end of the day, it’s all about supply and demand, that will determine what happens with property in Pakistan.

#5

@Its_ImtiaX_88 this is what I said that Pakistan did not denounce / condemn Russian’s invasion of Ukraine, and indeed abstained from voting. Signs of fall outs are already clear as Pakistan is to now face wrath of 22 EU countries, and the US which has already threatened Pakistan of consequences. (click the hyperlinks to read full stories.). I will reiterate that we have gained nothing from this “honeymoon” trip, only made enemies.

@asif.khan9, such global events trigger chain reaction that destabilizes world economies. As expected, the immediate reaction of this war is soaring commodity prices:

  • Oil: jumped from $75 in Dec to $115 – a 53% increase
  • Gold: is approaching $2000 an ounce
  • Coal: has made a history, it jumped all time high from $175 in Dec to $418 – will directly impact cement prices.

Property makes a logical hedge against any adversity, however, if chaos ensue then RE goes down the list of priorities.

@nice.isb, I agree that under such situation people try to find more solid options for RE investment than the risky ones.

#6

Foreign Policy have always been the weakest links of Pakistan as a state, whereas our neighbours have done way better. The main reasons is that we have presented ourselves as a security state and that hardly allowed room to pursue citizen-centric policy.

  • 80s we went in a full fledged war with Soviet. Dollars rained, Swiss accounts filled, kids US/Canadian National. Kids of Pakistais recruited and sent to AFG in the name of Jihad Fe Sabeel Allah.

  • Fast Forward 40 years, when we needed to be neutral, we opted a visit for visuals and repurcastions started to emerged. NBP case that was kept low profile suddenly popped up in US and PAK Security Advisor Moeed Yousef visit to the UK cancelled by UK authoroties. Unfortunately, it’s just the start of more worse to come as far as international relations.

#7

International oil price broke the barrier of $130 today as the west is considering putting a ban on Russian oil.

I will reiterate that if this war persists, world economy that was already suffering in COVID-19 will pace towards another big recession.

So it is the time to brace for impact.

#8

True. Whereas new Honda Civic 2022 is between 51-62 lakhs!!

#9

Why in Pakistan car prices are so high? Why it is over 50Lac Rs?

Sorry I am just trying to understand. I live in UK.

#10

Reasons are many, to cut it short the prime factor is high taxation, i.e., Sales Tax that can range from 30 - 40% of the price of the vehicle and the Nation is being told that You folks are Tax evaders.

Added factor is escalating USD and falling PKR

2 Likes
#11

The car assemblers in Pakistan have made a cartel. They influence govt polices and their dealer network and secondary investors create artificial shortage of supply and make billions from premium (“own-money”). This money goes all the way up.

Customer behavior is also to be blamed. They can not wait for 6 months to 1 year for a car and find easy way to pay own-money up to 1 million.

This cartelization and customer behavior gives undue advantage to car assemblers who dictate their prices and terms. If the end-buyers stop paying premium and let the cars rot in showrooms, then this will create competition and prices will come down.

1 Like
#12

2016-2021 Auto Policy showed some promising iniatives but still a long way to go.

Govt. got massive taxes from manufactures and turned a blind eye where until recently cars in range of 3 millions without Air Bags that was like a Gun without Safety Pin.

Pakistan is among the fewest of countries where Currency depreciates and Old Vehicles Apreciate. Pathetic trend from an economic point of view.

As a personal example, got a GLi auto in 2016 @ 18.62 + registration + taxes totled 19.25 - 19.40, drove for 6 months and sold to a relative at 20 (a bit lower than market) and he sold it for 25.0 in 2021. That’s like a 5 yrs old driven car, instead of depreciation, appreciating by 5.5 lakh (appreciation of 1.1 lac each year) despite getting older each passing year.

Our Auto market is a very weird place, it defies even the basics of economics.

1 Like
#13

If we sell a used car at a price higher than at which we bought it, I understand that it may not be termed to have been sold.on profit.

That’s because of factoring of inflation and devaluation.

#14

Seems like there is a huge demand for this civic too, people giving up to 1 million just for early purchase? Where do people get all this money from I wonder?

#15

They recover this premium from the next buyer I suppose. They just keep the car for a couple of years and then sell higher onwards, partially recovering own-money and registration fees.

Someone I know bought Altis 1.6 automatic in 2019 for 2.6m at invoice price, kept in mint condition now aiming to sell it for 3.3m – that is 27% jump.

#16

No it doesn’t. It’s basic supply and demand economics. Second hand Cars all over the world shot up because of shortage of semi conductors and other supply chain constrains. At one point last year in U.K, the second hand car was expensive than the new car due to long waiting period. Apart from this, Car prices in Pakistan is also affected by currency devaluation.

#17

In my view, it does.

For sure, I am not arguing on Supply-Demand thing, that’s pretty much a universal truth.

Lack of logistics (pandemic times etc.), other restrictions that are more like time or era specific don’t define an all to all situation that is applicable let’s says 10/10 times.

In our Auto industry/Trading to be specific: Moveable Asset that should depreciate overtime have always and always shot up. Create an artificial delay in delivery time is exploiting the supply-demand thing not how economic aspect of auto trade/delivery is played with.

From economic point of view let’s say a Mehran that takes pride in being locally assembled with many parts indigenously developed gives a hike as that of a full import counter part. And Yes, you may see even a slightest hike in USD gives a full blown hike in car price. There is no correlation of it with how economy of auto trading should work spontaneously.

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