Tuesday, January 25, 2011

Obtaining The Right Value Assessment: Property Prices

One of the most common misconceptions that property owners have is that property prices will keep rising regardless of the effect on the market of factors such as the political and economic situation in the country. The reality is that after every boom in the property market, property prices go through a period of 'correction'; they adjust to actual values rather then speculative ones; the span of such corrections can last for a very long time.
As a result, most property owners have no idea what the current market values of their property is and end up consulting a number of estate agents who in turn provide their own assessments of the property's value. In most cases there is a wide gap in the estimates provided by different estate agents, which adds to the confusion of the property owner in terms of what price to demand and they end up listing their property with the estate agent who quoted the highest value. Yet, a number of estate agents deliberately and incorrectly quote higher prices just to ensure that the owner lists the property with them. This is a unethical practice which does nothing more than make property owners happy for a short period of time.
1) Ask the estate agent to give the current property price assessment on company letterhead; but be prepared to pay a fee for this service.
2) If you plan to have an assessment done from different estate agents, do not look only at the highest value; rather consider the lowest assessment given to determine the actual value of the property.
3) Any estimate that is over two to three years old is no longer valid as property prices fluctuate depending on a number of factors which in turn end up keeping investors away.
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Sunday, January 16, 2011

Kick-Starting Mortgage Financing:Mortgage Rates In Pakistan

Mortgage Finance makes up a significant portion of the loans given out by banks in developed countries. In Pakistan, however, they remain unpopular primarily due to two main factors.
1) Interest Rates as high as 16 to 20% per anum makes the monthly repayment installments quite high (usually about four to six times the rental value of a property).
2) Average Monthly Income of salaried individuals is 20,000 rupees, rendering them ineligible to apply for a mortgage.
Another reason for the major dip in mortgage financing was the 2008 properly slump; investors have backed out of the market and the general public is reluctant to buy property in the hope of a further dip in prices.
To revive mortgage financing and bring some life to the real estate market, the following measures are suggested:
(i) The tenure for mortgage financing should be extended to 30 years (as it is in the U.S) so that monthly repayments are reduced to almost twice the staring rental value of the property. This can only happen if the State Bank and/or international institutions intervene in the market.
(ii) Early in 2010, the State Bank Of Pakistan suggested the formation of a company in collaboration with the International Finance Corporation (IFC), which would extend long-term loans with terms exceeding 15 years. The Government of Pakistan has agreed in principal offering to buy 20% equity in such a venture. Currently, commercial banks don't offer long term loans which limit the number of people willing to invest in the property market. If and when this company materializes it will increase the variety of mortgage products available in the market.
(iii) A national database for real estate documents with current titles )name of owner) should be put in place. This would help banks authenticate who the actual owner of a given property is and allow them o increase the number of areas for which they offer mortgages. Currently, most banks are willing to lend only in specific areas where there is a surety that title documents are authentic.
(iv) To facilitate low income buyers, the Government should enter into public-private partnerships with reputable developers and provide land at low cost.
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Friday, January 7, 2011

Pakistan's Real Estate Market In 2011

Although one may hope for the good news with the advent of the New Year, unfortunately there will be none for forthcoming from Pakistan's real estate sector and the slump which began in December 2007 will continue in 2011, as there are no signs of recovery for the ailing property market.
The December 2007 downturn was coupled with the Government's decision to increase the Capital Value Tax (CVT) from two to four percent in the 2009-2010 fiscal year. Although the objective was to collect 15 billion rupees from property transactions, in reality the Federal Board Of Revenue (FBR) collected only 2.5 billion rupees, one billion rupees less then it did in fiscal year 2008-2009.
In the current fiscal year (2010-2011) the Government has lowered the CVT from four to two percent, while the Provincial Government have enhance collector rates and revised the valuation tables ( both instruments are necessary in determining the market value of a property) significantly upwards. The end result has been that investors have stayed away from buying property.
The series of financial setbacks in the local market as well as in the Dubai property market, which began in the third quarter of 2008, still weigh heavily on the minds of local and overseas Pakistan Investors; they remain reluctant to invest in Pakistan's property until prices go up, and this has prolonged an uncertain situation, loading to financial losses not only for property sellers and real estate agents, with high collector rates and the prevailing status quo between buyers and sellers, it will require a miracle to push the market back up to the levels prior to December 2007.
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