Local Housing Trends: How do Interest Rates Affect Local Buying?


Real estate is one of the most prominent and lucrative industries in the world. It is widely considered to be a long-term, worthwhile investment by people looking to avoid any undue risks on their savings. However, it is important to remember that putting your money into this sector comes with its own set of benefits and shortcomings.

One major advantage of owning a property comes in the form of a steady flow of income. For instance, if you put your property up for rent, you can easily start earning a reasonable monthly rental income. Many people nowadays are willing to give up their regular jobs to earn this way. Also, the rewards, in many cases, outweigh the costs of investing in rental property.

Additionally, property values usually appreciate over time. This can be very helpful for those looking for long-term investments with high returns. It also doesn’t hurt that by adopting real estate as your primary source of income, you can enjoy the bonus of being your own boss; as well as other benefits like tax exemptions, mortgage coverage, and protection against inflation.

However, as great as these advantages sound, it is important to remember that the returns from a real estate investment may take some time to accrue, and can be affected by several external factors; with ‘Interest Rates’ being chief among them.

A rise or fall in interest rates impacts the property sector in several different ways. Here we will discuss the impact of an increase in rates on local home buying.

Understanding Rising Interest Rates and the Housing Market

Conventionally, buying or selling property has been difficult when interest rates rise, and relatively easier when they fall.

Money lenders offer annual interest rates on loans taken by potential homeowners. An increase in interest rates means a decrease in their purchasing power and vice versa. Thus, rising interest rates will lead to fewer buyers in the market. People will instead prefer depositing their money in high interest savings accounts. As a result, demand for property will fall, leading to lower prices across the industry.

Effect of Change in Interest Rates in Pakistan’s Property Market

Pakistan is a good example of understanding how increasing interest rates impact the local property market. The country has a long history in this regard.

There have been two notable events of this nature in the past. Pakistan’s real estate sector went through a significant boom when the interest rates fell to a record low of 7.5% between 2003 and 2006. The country experienced a similar situation between 2013 and 2016; this time with an even lower interest rate of 5.75%. However, each event was followed by a crash in property prices.

After 2016, the Federal Board of Revenue’s (FBR) recent hike in different property-oriented taxes and valuation rates, along with a decreased number of investments, has caused property prices to fall. This has made investors wary of spending their money, as they expect the current trend to continue.

Now, it could be argued that genuine buyers (those not looking to make investments, but to build a home for themselves) might benefit from the low property prices. However, the rise in interest rates has led to an increase in the monthly instalments required on house loans or mortgages. Many regular citizens will struggle to pay these high rates, making it very hard for them to buy a new property or home.


At the moment there are countless properties available for sale all across Pakistan. Many of these can even be found listed on Prop, a local real estate portal. However, if you are seeking to buy with the help of home loans, then you will have to wait for the interest rates to fall. Experts predict that the current decline and stagnation in the market will continue for the next few years. But if you really want to invest, you should consult local real estate agents to guide you in your search.

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