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What Should be Learnt From Last Real Estate Cycle ?,

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   What Should be Learnt From Last Real Estate Cycle
Monday, December 30, 2019 01:32 PM 
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What Should be Learnt From Last Real Estate Cycle ?



In macroeconomics it’s very difficult to calculate or predict the accurate time of Euphoria (Point of maximum financial risk) and Depression (Point of maximum financial opportunity) but still signs are there, when price starts taking support and buyers comes out at a certain price and sellers come out on Euphoria. Yes, we are talking here about market cycles, how they behave and vary in different timelines. On a large scale what we calls market emotions seems to be look alike same in every cycle, we need to observe psychological behaviors. Are we in discouragement mode and one depression is still ahead? or there are hopes and reliefs we are expecting ?


We should try to see here the pattern of lasts depression cycle and then we will notice how market entered in to recovery from 2012 onward. For a case study: price of average good location 1-Kanal Plot in Phase 6 was in between 60-70 Lacs. In these 4 years exchange rate dropped by almost 50% from PKR 60 in January 2008 to PKR 90 in December 2011. Nobody knows that when market will enter into recovery mode, in these 4 years panic selling had been observed. Many outstanding location and high potential properties were available at highly attractive prices. Smart Investors targeted the high potential areas and did a good buying. Everyone was expecting there is still a darkness in the end of tunnel.


The moment economic indicators showed positive signal and exchange rate became stable, the same 1-Kanal Plot in Phase 6 recovered almost 50-55% in prices in 2012. What happened ? It’s just a recovery against dropped exchange rate of last 4 year. After 2012 onwards same average 1-Kanal Plot in Phase 6 gained massively almost touched 275-300 Lacs in end of 2016, the last hyped period.


Financial Crisis in other countries have no impact on Real Estate of Pakistan, this what we had observed in past few cycles. Real Estate of our country have its own dynamics and it behaves accordingly. We are right now almost in end of 2019 and about to enter in 2020, currency had depreciated almost 50% in last few years, we had observed a very tough market situation in last 3 years, many high potential areas are now touching their almost minimum bottom. Further depreciation in currency is expected to be max 5-10% in coming years. Next year seems to be more tough for the market and prices would may observe a little more correction.


Expecting the best from the current government, next budget of 2020-21 will help out to move the things in right direction. Interest rates will definitely drop. 2021 will be the year when government will look upon the things in context of next election campaign. We are expecting that a recovery period will start from mid of 2021 onward. Restricting the black money and documentation in Real estate transactions will surely have impact on how market will behave in next hype period. So, what products should we target now ?. This is another topic we will address some another time.


Note: Thanks to Sir Salman Akbar, Investor of Lahore Real Estate for helping us out with figures and facts.


DISCLAIMER: The views, thoughts and opinions expressed in above text are based on our limited knowledge. If political and economic uncertainty will prolong then definitely there will be a different scenario and strategies.


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Khurram replied on Thursday, January 2, 2020 09:21 PM 

Here are my two cents on current economic situation and only if it would be allowed to be posted on this forum.

To assess the situation of current property market we should observe the first boom. In 2004 we personally bought phase 5 plot at around 6 millions which increased by many folds and reached 17.5 millions in 2006 ( the last price). My dealer was reluctant and told me to sell ( which was also highly unlikely)but some other dealer suggested prices may go higher.
And bubble bursted and the very plot reached back to 8 millions.
Then comes a buying period since investors have all the money and most of investors opted to buy under developed areas(Phase 9 was around 1 millions) at that time along with all different phases prices were nominal.
The reason investor started buying was only because market crashed really bad along with rupee devalued.

Same price boom was observed after 2011 and people tend to forgot that this honey moon is also short-lived since boom in property survives 2 years with investors taking the cream out in such times and wait for the next cycle.
But all that scenario seems to have changed. Since market never crashed and genuine buyers are way less. The demand price by sellers is sustaining and they want to sell at their own price. Due to shortage of buyers ( since investors knew even after devaluation of rupee property seemed to be on higher end to earn 3-4 times the money they would put in )along with holding power of seller the imminent bubble bursting survived and it’s still on verge of bursting but whether it will burst or not that would be another debate.
Take an example of gold. Gold had seen many booms and busts. But after the last boom in which price reached 1600$. It survived the bust and kept itself in the pendulum price of $ per ounce, but it never reached its high of since investor knew bubble never bursted so they never went in the market.

As per my analysis, property prices are far fetched and there are millions of other opportunities to get rich rather than die after buying a property. It’s a kind of myth that property never looses its charm. Their can be more factors that are involved but the major factor In my point of view is bubble never got burst and market could only get better once prices come to the level where investor would feel its time to hop in and cash out perks, or it may take another 7 years for prices of property to look attractive after multiple devaluations.
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