TUQ, IK and the impact of containment on the real estate market

Add one and one and you will get two, they said, but interestingly in Pakistan – especially when politics is discussed – adding one and one usually gives you 11 (eleven) and nobody cares for the profound laws of mathematics when one is getting late for work and a dumb, blunt boulder of a shipping container is blocking your way early in the morning. With that, I welcome you to several neighbourhoods in Islamabad and Lahore of late.

The political instability that’s been ailing Pakistan since its inception has taken a new turn. Keeping aside the terrorist threats in the north west (the location, not the unfortunately named daughter of Kanye West and Kim Kardashian), the very core of the democratic process is in flux as various political parties are marching on the capital with demands for things to be done better.

August 14, which is usually celebrated with great zeal and spirit (and by riding motorbikes without silencers, in the case of juvenile delinquents), this year became something of a strategic platform for political parties to utilise as a battle cry. The government, finding itself in hot water, is busy wildly overreacting to the notion of being confronted by a flood of angry people marching towards Islamabad with little (or no) legal recourse to topple it.

This leads us to a point where even the mighty real estate sector of the country finds itself a tad annoyed.

With construction containers blocking major roads and streets of Lahore and Islamabad, the real estate market of both cities seems to be holding its breath, meaning that buying and selling activity in the market is coming to a stand-still. The property buyers and investors are too scared to pour their money into the market in the middle of such a volatile situation, and the property owners are holding on to their possessions. The real estate agents of Islamabad have closed their offices until August 15, and the agents of Lahore are pretty much just going through the motions, opening their doors to customers they themselves know aren’t likely to show up.

So what do the numbers say? Thankfully the numbers have remained stable. Since there is no buying and selling, the prices haven’t experienced a rise or fall. One can even say that the market has opted for hibernation in light of this extreme political winter, metaphorically speaking.

Zameen.com Co-Founder and CEO Mr Zeeshan Ali Khan is of the opinion that the real estate market will experience no long-lasting negative impact due to the current political activities. He says that since no property is changing hands in the market and the market itself is based largely on cash transactions, the property sector will sail through this tumultuous Independence Day and the days following it largely unscathed.

In light of the deductions of Mr Zeeshan, one may expect a slowdown in the real estate market in the coming months. But that slowdown will be due to the economic situation of the country and the imminent correction that will come in the wake of the recent doubling of the property transfer tax, which makes it twice as expensive for investors to flip properties.

The situation in Karachi was perceived to be much peaceful as compared to Islamabad and Lahore. “Karachi was not affected during this period as other cities were affected more seriously. However a small percentage of clients were of the opinion that they would delay the decision of buying till 14th August to see the outcome of these political activities,” Zameen.com Regional Manager (South) Mr Mashood Ur Rehman said.

Mr Nawaz Ghani of the Lahore-based Ghani Estate also agrees that this political instability has much bearing on the reduced activity. “There are hardly any buyers in the market since the announcement of the budget because of the increased tax rates and new taxes. Buying and selling activity has slowed down even though prices are stable,” he says.

We have the example of Dubai at hand, where raising of the tax from 2% to 4% quickly discouraged flipping and caused the market to cool down. Something similar is happening in the Land of the Pure.