An Oddity in Real Estate: DHA Phase 10 Files

 

Following the 2020-21 boom, Pakistani real estate has stagnated. Some localities have witnessed a 10% correction while others have barely slugged along. None of this is surprising given that interest rates stand at 22%; investors presently prefer to keep their cash at the bank.

Liquidity has dried up too. DHA Lahore used to witness over 100 property transactions every day back in 2021. However, now that rate is down below 50 per day.

In the grander scheme of things, this is just part of the market cycle. Having been through the boom phase a couple of years ago, real estate is taking a backseat and is in its slump phase.

Generally speaking, there’s a four-to-five year gap between the peak of the boom and peak of the slump for the real estate sector. As per this rule of thumb, the current property market slump should begin wrapping up in 2025.

Within any real estate slump, the property files market is the first segment to see a sharp retreat. And this time around, the retreat has been even sharper.

As per Zameen.com’s price index, DHA Phase 10 has experienced a 3% fall in the past month. But one must note that Zameen.com’s index does not accurately track real estate prices. Due to stickiness of listing prices, the index lags true property prices by six to twelve months.

Instead, one can utilize online rate lists posted by real estate agents as an accurate reference of the files market. As per LahoreRealEstate’s Phase 10 residential files rate list, 5 marla trades at 32 lacs, 10 marla at 56 lac and one kanal at 99 lacs. This is in stark contrast with DHA Phase 10 residential file rates back in May 2023.

Back in May 2023, the rates were 45 lacs, 61 lacs and 108 lacs for 5 marla, 10 marla and one kanal respectively. At current prices that represents a 29%, 8% and 8% pullback in 5 marla, 10 marla and one kanal rates respectively.

These rates are consistent with rate lists posted by other real estate agents and websites such as dharealestate.pk. Consequently, there is no question about the veracity of these figures. Having read the above, a student of finance would tell you that this is a possible case of mispricing. They would recall a little concept they learned in class: the law of one price.

The law of one price states that the price of an identical asset should have the same price. In this case, the files will be balloted at the same time and the location of the land they possess a claim to is unknown. Consequently, if DHA Phase 10 files market sees a recession, then files of all sizes should see a similar downtrend. However, we witness a vast variation in price drop.

From the above rate lists, one would also notice another oddity: 5-marla files trade at a premium to one-kanal files on a per marla basis. However, this is standard in the real estate market as relatively developed areas such as the next-door neighbor DHA Phase 9 Prism has 5-marla plots trading at a premium to one-kanal plots in the same locality.

Roughly speaking, 5-marla plots trade at a third the value of one-kanal plots with the same characteristics. This is reasonable as demand for 5-marla housing is higher due to their relative affordability and there are fewer fees/taxes associated with them.

Returning to the previous oddity, 5-marla files in Phase 10 have seen greater volatility. This could be due to their higher trading volumes, which allows for greater price discovery. Or it could be a result of their lower base/price. However, this base effect would be beneficial for investors when the market picks up, as returns would get amplified.

If the Phase 10 files market takes an upswing, it’s likely that files of all sizes will touch their 2022 peaks. Assuming this, 5-marla, 10-marla and one-kanal files would give a 41%, 9% and 9% return, respectively.

5-marla would be the best option due to its potential upside. However, this potential upside can be a concern for greater volatility/risk in the short-term.

Before coronavirus hit the world, Pakistan’s property market was going through a terrible slump. At that time, 5-marla files in DHA Phase 10 were trading at a bottom of 25 lacs. If you were to assume this as a support level, then it gives a potential downside of 22% from current price levels.

On top of this, who knows when the DHA Phase 10 files market would pick up? There can be two significant positive triggers for DHA Phase 10 files market. One could be that the property market returns to its boom phase but that is possible 2-3 years away. Secondly, DHA could start Phase 10 balloting which would generate immense investor interest.

Balloting for a new phase takes place roughly every eight to ten years. DHA Phase 9 prism was the last phase to be balloted back in 2015. That would mean that DHA Phase 10 balloting should be expected by 2024-25. But DHA only does new balloting when the property market is in its boom phase. Therefore, the key pre-requisite for DHA Phase 10 files to give upside is when the property market pulls itself out of the present slump.

Nonetheless, if an investor is looking to enter the property files market, 5-marla files in DHA Phase 10 should be their go-to when the market picks up. Until then, they can continue to enjoy a cool 20% per annum return on their bank deposits.