LAHORE: The “Hold on for Dear Life” (HODL) mentality in the real estate industry means that individual and institutional investors own more than one residential property that is not being used. They are waiting to sell the property on purpose so that they can get a higher price when they do sell it.
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In Pakistan, there are laws that let the wealthy hoard different kinds of assets and finished goods to make their value go up as they age. We’ve seen this happen many times with different goods, even when land prices went up.
A real estate broker named Muhammad Ali Rehman said, “There have been problems on both the supply and demand sides of the housing finance market.”
“The biggest problems with the mortgage industry’s supply side are the lack of good foreclosure tools, the uncertainty of title deeds, the lack of new products, the risk of a maturity mismatch because there isn’t enough long-term funding, and the lack of skilled mortgage bankers. On the demand side, some of the biggest problems are rising property prices, a lack of financing options, the lack of formal financial services, and fluctuating interest rates,” he said.
The elite’s special interests are hurting the majority of people and making the climate disaster in Pakistan much worse than it should have been. Even now, Pakistan’s trade deficit has reached a record high of $48.66 billion because imports are going through the roof. This is up from $30.96 billion a year ago, which is a big jump of 57%.
At the same time, data from the central bank shows that there are about 10 million units of housing that are needed.
The elite and the richest 1% have done everything they can to stop laws that would prevent them from owning empty homes. They also continue to ignore the fact that the devastating floods in Sindh have left 12.5 million people without homes.
Census information from 2017 from the Pakistan Bureau of Statistics (PBS) shows that 25% of the houses in Pakistan have a weak structure. The data also shows that 26 million houses are owned, 4 million are rented, and 2 million are rent-free. Of these, 74% are made of stones, bricks, and baked bricks, 18% are made of mud or unbaked bricks, and 7% are made of wood or bamboo.
It is thought that about 700,000 new homes are needed each year, but only about half of this number is actually built. This is partly because people are holding on to land, which comes from the HODL mentality, so they can make more money when they sell the land in the future.
As a way to fix this, a double-digit non-usage fee (NUF) can be put on land. This would force people who own more than one plot of residential property to sell it or become partners in whatever project is built on the land.
Experts said that these stay orders should not apply to housing societies that are owned by the government.
Farhan Javed, Group Director at the online real estate market Graana, said, “Graana thinks this should be done.”
“In Pakistan, a lot of money is put into real estate, and it’s still the most popular asset class for people who want to invest. But what’s really going on in the sector is that people are trading files that show plots of land for housing societies that don’t even exist yet and won’t be built for 30 years. There are a lot of empty plots in places like DHA and Bahria that are well-known. “It will take between 20 and 30 years for these to be useful,” he said.
Javed emphasised that real estate should be useful by saying, “If someone buys a plot, they should have three to five years to build something on it to make it useful for the economy. The market will drop when a double-digit non-usage fee is put on residential land and a double-digit advance tax is put on the purchase and sale of vacant plots, but this is the only way for Pakistan to make money from investment in the real estate sector.
Recent price trends show that houses and other residential property continue to go up in value. This is because the NUF is low and the cost of HODLing is high. In the last six months, the index for residential property and houses has gone up by 7.2% to 7.5%, from 404 to 342.
“A NUF in the double digits will lower the value of the land itself, forcing the owners to sell or work with developers,” said Javed.
“Realistically, those who have extra plots will start showing that they are under construction with a small amount of money and try to buy time,” said Jawad Nayyar, Co-Founder of DAO PropTech, a FinTech that uses blockchain to make fractional real estate ownership more accessible to more people.
“It won’t be a huge help, but more work will be needed in the direct and indirect sectors because of it. Everyone who works in the real estate business will benefit. The empty plots are now being used as green pastures, which is bad for the environment,” he said.
Increasing non-usage fees will cause a construction boom, which will bring construction jobs to Pakistan, boost the local finished goods industries, and help increase the number of people who own their own homes. As a result, there will be more building, and once a double-digit NUF affects land value, the price of homes will go down because of unit economics. In four to five years, the perceived high value of land may go down, making housing more affordable for everyone.
The author is a senior research assistant at the Institute of Development and Economic Alternative (IDEAS)