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Record low interest rates will result in high property prices

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Record low interest rates will result in high property prices

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Record low interest rate in history of Pakistan

The state bank of Pakistan in its last meeting of May 2016 has decreased the policy rates by 25 basis points. The interest rate is lowered from 6% to 5.75%. New interest rate is the lowest in history of Pakistan. Historic average interest rate in Pakistan is 11.75%.

Interest Rate versus Real Estate Sector in Pakistan

Interest rate has great impact on the real estate sector of Pakistan. Whenever interest rate is increased we see crash in property prices and whenever interest rate is lowered we see a property boom. This is due to tow major reasons. Firstly, Pakistanis are used to park their money in banks to get profits. When interest rate is low they just withdraw their money and invest in real estate sector and we see rising property prices. Secondly, when interest rate is low home loans from banks become cheaper and more people secure cheap loans to build houses. This results in high real estate activities and property prices increase.

2003-2005 Property boom was due to record low interest rate

The biggest property boom in the history of Pakistan was observed from 2003-2005. This was due to the record low interest rate of that time, 7.5% in 2003. That time people withdrew money from banks to invest in real estate sector and builders got cheap loans to build housing projects. Which resulted in high level of real estate activities and property prices increased by many folds. This property boom ended when interest rate was increased in 2005.

Get ready for another Property Boom in Pakistan

Real estate sector is stagnant at the moment due to deteriorating economic situation in middle-east and also in Pakistan due to political instability. This decrease in bank rates will prove booster for property market. Once again people will withdraw their money from the banks and will invest in the businesses and real estate sector. At the same time builders will secure cheap loans. This all will result in high real estate activities.

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