Hi Mr Naveed/CMY,
In any real estate market, the inventory of houses/plots determines the direction of market as it tells if the market is over/under supplied. I would like to hear your opinion about how the supply and demand look like in Lahore RE market. Is there a way that you can give an estimate (for now) about the number of housing schemes and total number of 5, 10, 20, 40 marla plots available? I couldn't find a source on the internet so appreciate if you can guide me here. Is it possible to get an inventory of low price schemes (1marla = upto 1.5 lacs), average price schemes (1marla = upto 3 lacs) and high price schemes (1 marla = 3.5 lacs and above)? Is there a way to form a good estimate?
In my opinion, Lahore RE market looks oversupplied. For example, DHA phase 6 onwards itself has more than 50,000 files (correct me if I am wrong here). Then I live in US and every other friend of mine has a Bahria/DHA file or plot in Lahore or Islamabad. All of them are investors. Then I look at the local organic demand and I hardly see any young people settling their families in new houses. Most of the young people are living with their parents even with 2-3 kids as they don't have enough capital to make a house and are not willing to pay rents. Even some of my really wealthy friends just prefer to make an extra portion on top of their parents house as their seperate homes. The rent to home price ratio is extremely small (75 lacs 10 marla DHA house rents for 30-35K Rs max, ~5% return minus maintenance costs). Appreciate any feedback from other folks here as well.
Naveed Yaseen replied on Friday, September 25, 2009 03:37 AM
Dear Faisal I don't have numbers of demand and supply but would try to explain my views.
If we sort property market in three segments...
1) settled unplanned slums
2) settled planned areas
3) new planned developments
...then following patterns may be seen
• settled unplanned slums and settled planned areas are reasonably investor-free markets, thus are near natural demand-supply balance at prevalent prices in these segments.
• properties in new planned developments are influenced by investors/speculators/manipulators, thus their prices and price movements have not been natural.
• properties in settled planned areas are being traded at significantly higher price compared to either unplanned slums or new planned developments.
• properties in new planned developments are being traded at prices close to properties in unplanned slums. In many slums of Lahore it is difficult to find properties with land value below Rs 1.5 lakh per marla (or Rs 30 lakh per kanal).
For reasons described above I believe that new planned developments are currently priced not far above their inherent value. Rather, in my opinion, below inherent value.
On rents being too low compared to property prices, I think this is not due to speculative content. Rental returns have been below 5% for decades in settled slums and planned areas, probably due to our culture of preferring ownership over rent and culture of anticipating primary return from price appreciation rather than rent. |
Faisal replied on Saturday, September 26, 2009 03:22 AM
Thanks Naveed for your response some examples of these settled planned areas and new planned areas? You can keep the information generic if you don't want to reveal. I trust your judgement but would be interested to know how you reached that opinion (settled planned being overpriced and new planned being neutral). How do you form what would be a "fair" price for any plot/property?
Thanks Aamir for your response. I am intrigued by the study you cited and would like to get more details. Could you please post a link or reference to the study? I agree that there is demand for rentals but doesn't this great demand indciate that people cannot afford to buy houses so they are renting? With our culture of ownership, definitely people prefer having a house. But the reason there is such an increase in rental occupancy (7% to 22% as you stated), indicates that people are out looking for housing but feel they cannot afford to buy and hence settle for renting?
Thanks for everyone's time. |
Naveed Yaseen replied on Saturday, September 26, 2009 05:32 AM
> some examples of these settled planned areas and new planned areas? You can keep the information
> generic if you don't want to reveal.
Yes I meant the categories to be generic, but some specific examples of settled planned areas in Lahore may be DHA 1-4, Model Town, Gulberg, EME, Johar Town, Faisal Town, Allama Iqbal Town etc.
The even longer list of new planned areas may be inferred by two characteristics, first that whether it is developed by competent authority or developer, and second that it is not well settled yet (say less than 25% occupancy yet).
> how you reached that opinion (settled planned being overpriced and new planned being neutral)
I didn't mean either one overpriced or neutral. Rather I meant that settled planned are probably close to natural balance due to investors absence, and new planned have been erratic/volatile in both directons due to investors/speculators/manipulators.
And about settled planned being traded at significantly higer prices than new planned, this can be observed in market prices of both, where former is usually folds more than later.
> How do you form what would be a "fair" price for any plot/property?
There may be different routes to estimating inherent value, sorted by reliability in my opinion (most to least)
- by inherent business return (rent minus expenses)
- by utility value to consumer
- by cost and difficulty/ease of developing comparable
- by resale value of torn parts
- by comparables in past with inflation adjustment
- by comparables in neighborhood (this method is least reliable but unfortunately most frequently used)
(note: more or less similar routes may be used for estimating inherent value of stocks) |
Aamir replied on Saturday, September 26, 2009 04:44 PM
"this great demand indicate that people cannot afford to buy houses so they are renting?"
Not necessarily because of the following:-
1. Those who (Businessman) could afford to buy a house still prefer sometime to live in rented houses and let the capital in hand utilize for circulation.
2. Multinational and local companies in private sector facilitate their employees to live in rented houses.
3. Movement of people from smaller cities to metropolitan on temporary or permanent basis increasing the demand of rental houses.
The bottom line is whether rented or on ownership, there is a huge demand of houses in Lahore. This demand is attributed to many factors, of courses, unaffordability being the one but not the sole reason of this phenomenal rise. |
Tahir replied on Tuesday, September 29, 2009 07:33 PM
Thanks both of you for your kind and insightful opinions. Greatly appreciated. |
Ali S. replied on Tuesday, September 28, 2010 01:19 PM
Hello All,
I own a 4 1/2 kanal plot on Hali Rd,Gulberg III,Lhr.& this can also be offered in tandem with another plot which will bring it to a total of 5 kanals 16 marlas.This plot near the empty 3 acre plot on Hali Road.It is situted near to the Masjid.Can anyone tell me what is the current mkt value of this plot?
They have created a ''Stadium Road'' which is from Qadaffi Round About upto I.T. Centre.There is only one Hali Rd. that runs from Main Mkt/Zahor Elai Rd-Chen One Chowk-Qadaffi Round About.One single road.They seem to have unduly favored only one section.Even the LDA Sign boards say Hali Rd. at Qadaffi Chowk!Lol. |
