What Causes Real Estate Prices To Drop?

What Causes Real Estate Prices To Drop

Real estate has often been considered an effective vehicle to launder black money; that was certainly the case in Pakistan until the 2016-2017 budget brought new laws into force that significantly increased taxes on transactions of property, revised rates, and eventually blocked black money’s entry. 

But still you must be wondering “What Causes Real Estate Prices To Drop”? 

The short Answer is “Increasing interest rates (which increase the cost of mortgage payments) High unemployment and the economic downturn (which reduce demand and lead to foreclosures).”

Pakistan’s real estate market has made significant contributions to Pakistan’s sociology economic development over recent years, according to State Bank of Pakistan reports, which indicated that housing and construction activities accounted for an annual average share in GDP more significant than 9 per cent since 2008. Unfortunately, in 2023, the real estate sector in Pakistan is experiencing a crash; in this blog post “What causes real estate prices to drop“?, we will detail five reasons for property prices falling across Pakistan.

What Causes Real Estate Prices To Drop?

There are multiple factors that are considered in what causes real estate prices to drop. To avoid these causes, it is better to be aware of them. Some of them are;

Economy Change

Real estate fluctuations often depend on the state of the economy. This can be measured using indicators like employment data, manufacturing activity levels, price changes for goods sold at wholesale and Gross Domestic Product (GDP). When employment levels remain steady, or unemployment decreases significantly, home prices typically increase as individuals feel safer taking out mortgage debt loans with confidence and security.

But home prices usually decline when the economy experiences an economic downturn due to falling incomes or job loss, causing many citizens not to be financially secure enough to purchase houses they once could during more robust times. Housing demand drops and motivated sellers reduce asking prices so as to attract buyers — home buyers’ dreams! One notable example was the 2008 Housing Bubble due to the economic recession causing price depreciation;

Action against Black Money

One factor underlying recent property price falls is tight accounting measures implemented by government authorities, specifically their “zero tolerance policy for black money”, with those purchasing properties with such illicit cash now having their sources of income scrutinized and possibly facing charges themselves.

Supply and Demand

House prices can be affected by supply and demand, just like goods and services are. Since every transaction involves two parties – buyers and sellers – an increase or decrease in supply could impact prices either up or down; when there is low supply but high demand, it would be considered a seller’s market, leading to bidding wars common at that time. On the flip side, it would be regarded as a buyer’s market when supply exceeds demand; an oversupply often causes prices to decrease faster and remain on the market longer than desired by sellers.

Pro Tip: This is an excellent way of what causes real estate prices to drop to monitor supply and to follow mortgage news in major media or observe whether “for sale” signs exist within different neighborhoods.

What Causes Real Estate Prices To Drop?
What Causes Real Estate Prices To Drop?

High Interest Rate

Interest rates have an immediate and direct effect on property prices in Pakistan; indeed, there exists an inverse relationship between interest rates and the costs of properties. When interest rates increase, banks give out more profits from fixed deposits, which then grow property prices, while when rates decrease, they stop offering those profits. Thus, people buy properties, which increases demand and consequently its price, causing property prices to plummet in turn. Hence, the second cause behind the property price crash in Pakistan would be high-interest rates.

Illegal Housing Schemes

One cause of what causes real estate prices to drop for Pakistan’s property price crash has been NAB’s crackdown against illegal housing societies; many Pakistanis have lost life savings as a result. But things have improved significantly now that the government is demolishing illegal constructions, while the National Accountability Bureau has closed down many illegal housing schemes or societies; according to research conducted by NAB, an estimated 6,009 such schemes or societies exist across Pakistan. This factor has also had an enormous influence on real estate investments; people fear investing and purchasing properties due to illegal housing schemes. Property prices have thus drastically declined across Pakistan, with Town One providing authentic legal housing solutions.

Non-Filer Property Buying Restrictions

In its 2018-19 Mini Budget, the government upheld restrictions on property acquisition by non-filers, resulting in an immediate slowdown of luxury real estate market activity. Finding interested buyers has become significantly harder due to fewer filers being available as purchasers; furthermore, overseas Pakistanis must now submit bank certificates as evidence that funds were transferred from abroad within 60 days prior to registration of property ownership. Together, these legislative actions have caused investments in real estate to decrease dramatically, leading to overall price decreases across the Pakistani real estate market, resulting in a nationwide decline in prices.

what causes real estate prices to drop is that Pakistan is currently facing an acute housing shortage, with 12 million new houses needed, yet only 340,000 of these properties exist today. To address the crisis and meet demand, Pakistan plans to develop 200,000 housing units under the Naya Pakistan Housing Scheme (this scheme is stopped now due to political issues), which provides individuals interested in buying private schemes with more affordable options. This project’s development has resulted in reduced investments into private societies/projects, leading to reduced investments overall, and consequently, real estate prices have fallen across Pakistan; the Mall of Korang stands out among these investment opportunities for possible investors in Pakistan! 


Pakistan’s real estate future has undergone dramatic change with the implementation of new rules and policies. It is no longer possible to park black money into real estate investments for illegal speculation purposes. Only residential or commercial use properties are now allowable as opposed to their old tradition of being used without regard. Furthermore, abnormal property prices no longer prevail, and future costs will fluctuate gradually and steadily. Ultimately, every taxpayer in Pakistan will now own their home, making sure businesses operate fairly and transparently. Now you have got the right idea of what causes real estate prices to drop.

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