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Economic downturn takes toll on property prices - Naveed Yaseen - 11-07-2008 09:53 AM
By Mansoor Ahmad
LAHORE: Real estate rates are under pressure, as entrepreneurs are trying to offload their assets to remain afloat or convert the assets into dollars.
The News has found that almost all industrial sectors are incurring losses, as they are unable to recover their cost due to high interest rates, inflation and plunging sales. These factors have made it impossible for industries to service their loans.
It has been found that most industries first tried to slash their inventories by selling them at discounted rates to overcome cash crunch and pay loan instalments.
After exhausting this option, some of the manufacturers preferred to delay payment of bank dues while some disposed of their property to repay their bank loans on time.
It has been found that the industries that have been regularly rescheduling their loans in the past preferred to delay bank payments as their asset values were less than their loan amount. They know that banks would ultimately approach them for rescheduling loans again instead of going into litigation.
However most of those manufacturers that have never defaulted in the past nor they availed any rescheduling opportunity preferred to dispose off their property and pay banks on time.
They have a reason to do so. They have built up assets by remaining update on their loans. They run the most efficient industries in their sector that has saved them from minor economic downturns in the past.
The current economic decline is beyond their capability as the cost of production has risen taking the costs beyond the reach of the consumers. The rates of real estate have declined by 30-40 per cent during last 10 months as large numbers of entrepreneurs are offering their high valued property for sale. The decline in rupee value during past two months has accelerated this process.
The pressure on property further intensified as businessmen saw huge risk to their capital because of massive devaluation of rupee. They are also disposing of their assets in rush. They are transferring capital abroad to save themselves from the decline in their asset value. The Advisor to the Prime Minister on Finance has admitted that billions of dollars have been transferred abroad in recent months.
It was found that stock market players also had bought big properties from the wealth they accumulated during the good days in the stock market. Some of them had already cashed the assets and parked money in dollar accounts while many are contemplating disposing their properties to settle their accounts with the bourses when the lower floor cap on the market is removed.
After shock in capital market they do not consider property as a safe avenue. Most want to get rid of the property and convert it in to foreign currency.
It was found that property rates have declined more sharply in the posh localities where most of the industrialist elite and capital market investors had accumulated large properties. The decline in middle class housing schemes is half decline witnessed in posh residential colonies.
http://www.thenews.com.pk/daily_detail.asp?id=145226