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Estate of affairs

City’s real estate market tries to readjust after a lull. Investors give way to buyers with genuine housing needs

Estate of affairs
Intra-country movement results in increased demand for accommodation and leads to pressure on land. — Photo by Rahat Dar

Muhammad Arif, who is in his mid 30s, is settled in Lahore and known as a successful real estate advisor.

Originally from Jhelum, Arif moved to Lahore over a decade ago, to find a dream job but could not. He hopped from one job to another, for reasons best known to him, ultimately realising that with his educational qualification and experience he could not earn and save enough money to meet his financial needs as well as his family’s back home. He wanted savings, in order to be able to pay off the debts his father had obtained for agricultural purposes and buy some land adjacent to his house.

He suffered from repeated bouts of depression and hopelessness till he met a school fellow who was running a real estate agency with great success. The latter had earned good enough over the years, and the best part was that he had hardly invested his own money. The high returns on investments in the real estate sector had brought fortunes for him. He would get a decent share of the profit on investments made by people who followed his advice.

Arif took no time in joining his friend’s agency. He also managed to convince his expatriate relatives and friends to invest in Lahore’s real estate market and expect good returns over a short period of time. Soon he had enough money at his disposal to set up his own real estate agency.

The preferred locations where investments had been made were Defence Housing Authority (DHA) — mostly, it’s the freshly developed phases — Bahria Town, and housing societies falling on the alignment of the remaining part of the Lahore Ring Road (LRR). Many of these societies are coming up on Raiwind Road that will have LRR intersect it.

Does the sector still offer a lucrative investment avenue to people or now it’s time for those with genuine housing needs to put their money here? TNS put this question to different players in the field, to get an idea of the current dynamics of the market. It transpired that one perception is quite popular: Speculative investments have come down considerably and so the number of transactions.

“Real estate market of Lahore has remained an investment haven for many. Even today, though the transactions are not taking place in large numbers, the plot prices haven’t come down, because the people are following a wait-and-see policy.”

The investors who would buy plots and sell these on profit after a couple months are not normally doing that as they have to pay withholding tax on sales made within three years, following the purchase of the said property. The tax rate is 10 per cent for sales made within one year, 7.5 per cent for those made between one year and two years and 5 per cent for those made between two years and three years.

Syed Athar Ali Kazmi, President, Lahore Real Estate Advisors’ Association (LREAA), claims that the “real estate market of Lahore has remained an investment haven for many. Even today, though the transactions are not taking place in large numbers, the plot prices haven’t come down, because the people are following a wait-and-see policy.”

Kazmi says the returns have been phenomenal for investments in DHA because people feel safe going for them. They know the price would increase with the completion of every single step — from buying file to balloting — and, therefore, put their stakes here.

It’s a fact that a major share of foreign remittances is ultimately invested in DHAs because there is minimal or no chance of any irregularity. “The activity in DHA has had a rollover effect on other societies as well,” Kazmi adds.

At the other end of the spectrum, Kazmi feels the private housing societies do not normally have checks and balances in place, so the investors and buyers think twice before putting their money in. “It’s quite likely that there is some issue with the documentation, the pace of development can be dead slow and in worst cases a certain piece of land may have multiple claimants all trying to prove they are rightful owners.”

“Real estate market of Lahore has remained an investment haven for many. Even today, though the transactions are not taking place in large numbers, the plot prices haven’t come down, because the people are following a wait-and-see policy.”

This perception is so strong that it sometimes becomes hard for the real estate advisors to convince their clients to invest even if a housing society is free of such issues. According to Kazmi, there is an urgent need for around 0.25 million housing units in the city as the population is growing fast, and more and more people are reaching here from different parts of the country. Besides, there are students who move here in large numbers in search of better educational facilities especially when it comes to higher education.

This intra-country movement results in increased demand for accommodation and leads to pressure on land. In other countries, rental buildings are developed to accommodate such students and keep the real estate markets free of pressures of this type.

An interesting finding in this context is that investment is going into properties being offered on installments because taxes are not applicable till the transfers are made. For this very reason, plots and housing units are increasingly being offered on sale.

Gohar Majeed, Director, Trust Deals, a leading real estate development company based in Lahore, says the government is apparently trying to shift investment from a non-performing sector to the performing sectors of economy. “The real estate sector is termed such sector by the government as it does not create enough jobs and not even construction-related activity if people simply buy and sell plots and these just keep on changing hands.”

His point is that even though bringing this sector under radar is not a bad idea, the way it has been done has hit the sector hard.

Majeed says a major change that Lahore’s real estate sector is witnessing is that it is ultimately going for vertical growth. “As the land in city centres such as Gulberg and Garden Town gets too expensive, the developers are building apartments in multi-storey structures. Hide Park Apartments, close to Liberty Market, service apartments, projects of Army Welfare Trust (AWT) are just a few examples.

“The price of land on Main Boulevard, Gulberg and MM Alam Lahore is as high as Rs120-160 million per kanal.”

Market sources reveal a lot of investment went to Gujranwala DHA, a major reason for which was that many plots of different sizes had been offered for sale for less than Rs4 million each. These properties were high in demand as those having value less than Rs4 million are exempt from this tax.

“The trend now is that the investors are eyeing housing societies on Raiwind Road because the LRR section, up till the Adda Plot, is likely to be finished by August 14. The plots purchased there will definitely gain value after the completion of this road.”

A recent development, Majeed highlights, is that approval to convert a green area near Soay Aasil on Ferozepur Road has been denied by the government. “The decision is taken on the grounds that there are enough housing societies being developed at the moment and there is no need to further deprive the city of its precious agricultural land.”

A source in the Lahore Development Authority (LDA) reveals that the master plan of the city has been revised and it will be ensured that it is not violated like it happened in the past. The areas developed in violation of the previous plan have also been included in the plan as it was impossible to undo this development.

The source says that once the LDA-approved housing societies start delivering like DHAs, the investments is expected to start pouring in. This shall relieve pressure on the DHAs.

Shahzada Irfan Ahmed

shahzada irfan
The author is a staff reporter and can be reached at [email protected]

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