The property market in Pakistan has been going through a challenging phase in recent years, marked by slow sales, decreased investments, and overall uncertainty. One of the most significant factors contributing to this situation is the Karachi Interbank Offered Rate (KIBOR). To understand this better, let’s break down the reasons behind the property market's decline and the role of KIBOR.
 

1. High Inflation Rates

Inflation refers to the rise in the prices of goods and services. In Pakistan, inflation has reached high levels, making essential commodities like food, fuel, and utilities more expensive. As people spend more of their income on daily necessities, they have less money to spend on property. For most buyers, purchasing a home is a significant investment, but with reduced purchasing power, it becomes less feasible. On the construction side, inflation raises the cost of building materials like cement, steel, and wood. This increases the cost of developing new properties and boosts the final selling prices, reducing affordability for buyers.
 

2. What is KIBOR and Its Impact?

KIBOR is the interest rate at which banks lend money to each other in the interbank market. It serves as a reference rate for setting the interest rates for various loans, including mortgages.
 

Impact on Property Market:

When KIBOR rates increase, borrowing becomes more expensive for both buyers and developers.

1. Higher KIBOR means higher interest rates on home loans for Homebuyers, making it costlier to finance a property purchase. Fewer people apply for loans, causing a drop in demand for property.
2. For Developers: Developers often rely on bank loans to finance construction projects. Higher KIBOR rates increase the cost of borrowing, discouraging new projects and slowing down the supply of new properties in the market.

As a result, both demand and supply are negatively impacted, causing the property market to slow down significantly.
 

3. Tight Monetary Policies

The State Bank of Pakistan (SBP) often adopts a strict monetary policy to control inflation. This policy involves raising KIBOR rates to reduce money circulation and lower inflation. While this helps manage inflation, borrowing is more expensive for everyone, including those looking to invest in property or buy a home.
 

4. Economic and Political Instability

Economic and political uncertainty makes potential investors hesitant to invest in long-term investments like property. Factors such as currency fluctuations, changing government policies, and inconsistent tax regulations make the property market appear risky, reducing investors' willingness to invest.
 

5. Changing Property Regulations

Frequent changes in property laws, taxes, and regulations can create confusion and uncertainty among buyers and investors.

For example, the imposition of new taxes or restrictions on non-filers can limit the ability of many potential buyers to invest in real estate, further slowing down the market.
 

6. Lack of Affordable Housing Options

1. There is a significant gap between the demand for affordable housing and the available supply.
2. With rising KIBOR rates, even those who wish to purchase more affordable homes face difficulties in getting loans, leading to fewer property transactions overall.
   
   

KIBOR Rates from 2021 to 2024

The following table presents the KIBOR rates for different time periods tenor from 2021 to 2024, showing the trend and how borrowing costs have increased over the years:
 

In Summary

The property market in Pakistan is facing multiple challenges, with rising KIBOR rates playing a major role in its decline. High KIBOR rates increase borrowing costs, reduce affordability for buyers, and discourage developers from starting new projects. Along with inflation, economic uncertainty, and changing regulations, the property sector is struggling to maintain growth. To revive the market, lowering KIBOR rates and introducing measures to increase affordable housing options, making homeownership more accessible to the masses.

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