Sunday, December 02, 2012

Does Size Matter in DHA 9? (i.e. Plot Size)

Comparatively which size is a better buy for 5 years investment in DHA Lahore Phase 9?


5 Marla DHA 9 file is at 11.80 Lakh
10 Marla DHA 9 file is at 19.30 Lakh
1 Kanal DHA 9 file is at 31.25 Lakh

In DHA and other housing scheme generally there is a multiplication factor (for price) of 1.4 to 1.6 for a double sized plot with an average MF of 1.5:

i.e. generally

Price of Average 10 Marla plot = 1.5 X Price of Average 5 Marla plot.

Price of Average 1 Kanal plot = 1.5 X Price of Average 10 Marla plot.

Based on anticipated price of 5 Marla @ 40 Lakh (excluding development charges) and the MF (multiplication factor) of 1.5, after 5 years prices of average plots in DHA Lahore Phase 9 will be:

5 Marla at 40 Lakh
10 Marla at 60 Lakh
1 Kanal at 90 Lakh

40 X 1.5 = 60
60 X 1.5 = 90

Please note there are EXCEPTIONS based on skew in supply relative to plot size and demand of end users for particular sizes. Example: price of 2 Kanal > 2 X Price of 1 Kanal in DHA 6 and 7 due to very little supply of 2 Kanal plots and relatively high demand from home makers with deep pockets.

And currently this general rule does not apply to 5 and 10 Marla plots in DHA 9 where price of average 10 Marla plot is almost double of the price of average 5 Marla plot. But based on the anticipated supply (a large number of 10 Marla and one kanal plots be sold to public on installments) and demand of small to large sized plots it is safe to assume that after balloting this general rule of 1.4 to 1.6 MF will hold likewise in DHA 9. Keep in mind however that despite MF of 2 in DHA 9 plots, the MF for the files is 1.62 to 1.63 at this time (11.80, 19.30 & 31.25).

31.25 / 19.30 = 1.62
19.30 / 11.80 = 1.63

As mentioned above, it all depends on supply of smaller sized plots compared with the supply of larger sized plots, and demand from the potential home makers. Small sized plots (5 and 10 Marla) in large numbers are relatively a new phenomenon in DHA 9.

So, assuming average price of 5 Marla at 40 Lakh (excluding development charges) after 5 years, the anticipated prices (in Lakhs) and Price Appreciation will likely be as follows:

Plot SizeCurrent PriceMF
5 Marla11.8040404040
10 Marla19.3056606468
1 Kanal31.257890102116
Price AppreciationMF
5 Marla339%339%339%339%
10 Marla290%311%332%352%
1 Kanal251%288%328%370%

BOTTOM LINE: If the MF goes above 1.62 the larger size wins and if MF goes below 1.62 smaller size wins (very likely to be around 1.4 or 1.5) especially 1 Kanal Price will very likely be equal to 1.4 X 1.4 X 5 Marla Price, since there will be so many one kanal files compared with smaller sizes. The uncertainty about 10 Marla price will remain till announcement or lack thereof of more 10 Marla plots.

(Sorry for being too hypothetical about baseline price. No one among us knows the future, but there is some essential tadka of currently verifiable facts applied to possible future scenario of that baseline price)

Adnan replied on Thursday, November 29, 2012 02:43 PM PST

Dear Observer, I appreciate the statistical analysis, however, this multiplication factor depends upon many non statistical factors including location of the plot as the most primary factor. Most of the plots in phase 9 will be on 40 foot roads, also today 5 marla sounds better as there are plots on the ground and development work is being done, plus people will less cash (which is most of the population) are looking to buy them. Tomorrow, big budget guys will jump in, specially expatriates, and they would affect the price of 1 kanal more than the smaller plots. Which means that there are more chances of 1.7 than 1.5 for one kanal plots. Also, the above table takes into account existing prices, we have to remember that 5 marla is already at a high due to development work and confirmed plot status, whereas 1 kanal is currently at a lower level than it should be. Therefore, if you consider the pricing structure in say 6 months from today, the difference in price of each size will be much different, which will change the ROI factor.

Observer replied on Thursday, November 29, 2012 05:08 PM PST


Since we are considering average prices in each size category, the location of individual plots (exceptionally good or bad plots) does not matter for the sake of price comparison.


I think 1.7, i.e.

Price of Average 1 Kanal Plot = Price of Average 5 Marla Plot X 1.7 X 1.7

is extremely unlikely in DHA 9 looking at the number of 1 Kanal to 5 Marla files and potential long run end user buyers. An MF above 1.7 is almost impossible for "5 Marla Price X MF X MF = One Kanal Price" formula. However, in case of DHA 9, 5 Marla to 10 Marla MF may go to 1.7 or more, if many more 10 Marla plot are not offered. That larger 5 Marla to 10 Marla MF will however reduce the 10 Marla to 1 Kanal MF. Ultimately, keeping the relationship between 5 Marla and One Kanal at consistent levels regardless of number of 10 Marla plots.


As a side note, looking at the table above, it seems relatively easier to assume 5 years Price appreciation in the tune of 300% in case of DHA 9 files, compared with assuming likewise price appreciation in say DHA 5 or 6 or 8.

If you are buying or holding one or more plots in DHA 5 or 6 or 8 priced around one Crore or more, do you really feel it is more likely to give you Price Appreciation of 300% in N number of years or is DHA 9 is more likely to appreciate to that level from current price levels.

In other words if you are buying or holding a plot in DHA 1 to 8 priced at One Crore do you think it is more likely to go to 3 Crore in next 5 years or it is more likely for DHA 9 file to go to 3 times as much from the current very low price levels. A good investment with lower budget and having good potential is much more likely to go triple in price compared with a large budget already mature item, in the same amount of time.

Moral of the Story:
If you are in it for investment purpose only (not an end user who has to make home soon on that ideal plot in that ideal phase), it is smart and prudent to liquidate some of those high priced MATURE investments and switch those funds (without further delay) to relatively low priced investments having much more potential of return on investment.

In Real Estate TIMING is always much more important than LOCATION LOCATION LOCATION. A smart investor should Make good investment at right time, Let it mature, and Switch when it is mature (MLS). You may also choose to switch when it is not mature yet, but has already given you good return too fast, because the world is always full of even better investment opportunities to choose from.

Habib replied on Thursday, November 29, 2012 05:28 PM PST

In general for an average Housing Society the Above analysis is Good small Plots are expensive than Bigger/merla, however still in Phase 5, 5 merla can be Found less than 40, wehre as good Kanal plot is 120+
DHA is sign of Grandiorisity, I my self have no concept in living in Suburban areas Like DHA if you dont have 3 cars one Driver and One Full time servents in home. Living in 5 Merla House in DHa does not suit that Concept at all, If You visit 5 merla and 10 Merla Houses in DHA 1 they look so Poor as Compared to Bigger Houses of same age and Phases.
That is the reason 2 kanal plots and Houses are Much more expensive in DHA if You go by Multiplication Factors like This This
But if You go to mid Calss areas Your analysis is 100% Correct.
The Bottom line is For Midde or Low Middle class it is not good to live in posh Localities, You can use DHA Brand but life is difficult in Budget and Commuting cost.

Observer replied on Thursday, November 29, 2012 06:20 PM PST

1. I have clearly mentioned above that there are some EXCEPTIONS even in DHA, especially for 2 Kanal plots which are few compared with demand from the home makers with deep pockets. There are other exception in other sizes too (in different DHA phases), but in general this rule also applies to DHA. And BTW the exception also apply just like DHA to all other housing schemes too. Neither this Rule, nor the Exceptions are unique to DHA only. So you will likely get lost in this Rich/Poor, Superior/Inferior theory while trying to create some special DHA factor here.

There are variables other than plot size (especially # of plots, i.e. demand and supply for potential buyers) which equally affect DHA as well as other societies. In fact I believe the desire to live in DHA for the middle class in much stronger than any imaginative inferiority complex, otherwise why would they buy a 10 Marla under development plot in DHA 9 for 45 Lakh when they can easily buy a 1 Kanal under development plot in DHA 7 for 45 to 50 Lakh. It only means that there is definitely very strong desire to live in DHA from the middle class community AND DHA 9 definitely has much better location and potential than DHA 7.

2. Even with the exception, your comparison is totally unfair, where instead of comparing average plot at similar location, you are comparing worst plots in one size category to best plots in the other size category. This is not fair and does not hold logic for the sake of accurate comparison.

3. I also mentioned above that 5 and 10 Marla in relatively large numbers and with even better treatment than one Kanal, at least so far, is a new phenomenon in DHA. This is not the case in most previous phases. Still you can verify the ratio or MF in most cases with few exceptions.

4. You need to visit again the localities of small size plots (5 and 10 Marla) in Phase 5 and Phase 3, verify the actual going rates and the sentiments of their residents towards proudly living in and being part of DHA. You will rarely find any inferiority complex, unless you have one in yourself. It is you who matter, not the size or your house. You feel inferior ONLY if you think others are superior. DHA has nothing to do with that.

5. Here are some examples for you:

In DHA 1 to 4 reasonable and comparable plot prices are (for 5, 10, 20 Marla): 48, 75 and 110. That is MF of 1.6 and 1.47

In DHA 5 reasonable and comparable plot prices are (for 5, 10, 20 Marla): 43, 68 and 110. That is MF of 1.58 and 1.62

In DHA 6 reasonable and comparable plot prices are (for 10, 20 Marla): 58 and 85. That is MF of only 1.47

In DHA 7 reasonable and comparable plot prices are (for 10, 20 Marla): 30 and 50 in same incomplete blocks. That is MF of 1.67 which is gradually going down with time, and will likely touch 1.50 level at possession time

In DHA 8 Parkview reasonable and comparable plot prices are (for 10, 20 Marla): 55 and 80 (see prices in C and C Extension). That is MF of only 1.45

In DHA 8 Air Avenue reasonable and comparable plot prices are (for 10, 20 Marla): 49 and 70. That is MF of only 1.43

In general the real MF (of comparable plots with variation in size only) goes down with time, approaching below 1.5 at maturity, with few EXCEPTIONS here and there.

BTW, I am very happy if MF in DHA 9 goes above 1.7 and always remains above 1.7, but I find it next to impossible. Something around 1.5 is more likely to happen.

Observer replied on Thursday, November 29, 2012 10:18 PM PST

RE: Development Charges

All comparisons are uniform as far as development charges are concerned. Where the development charges are not known all sizes/instruments are compared excluding development charges. Even if we include some hypothetical development charges those are a small part of the overall value and generally vary not too differently from the MF of plot price.

For example, in DHA 7 new cuttings, the development charges for one Kanal are 15 Lakh and development charges for 10 Marla are 9 Lakh. 15/9 = 1.67 similar to MF discussed above. It is reasonably fair to compare prices excluding or including development charges provided prices on both side of comparison are treated the same way. Current prices and anticipated prices of DHA 9 are all excluding development charges which is clearly mentioned. The MF will practically remain the same if development charges are also included on both current and anticipated prices. Any difference in calculations with variable but reasonable amounts of development charges will statistically negligible.

The purpose of this whole exercise is to highlight the significance of this Multiplication Factor (MF) between the prices of differently sized plots. It can be reasonably concluded that while keeping a keen eye on the current and future scenarios of Supply and Demand, when the MF is seen hovering around higher sides (e.g. 1.7), buying the smaller sizes will generally yield more return on investment compared with buying larger sizes. Likewise, when MF is too low (around 1.4) it will generally prove better to buy larger sizes and ignore the smaller sizes.

SIM replied on Thursday, November 29, 2012 10:47 PM PST

Brother Observer, I am really impressed with your statistical analysis. But the point is, does it really matter at the end. The prices will be determined at last by the ruthless, Demand and supply Rule. Where poor will not be able to compete with rich. The way we are printing Currency, we can expect any price in future.
I understand that availability of habitable land is increasing in Lahore but so is the population. Be it DHA or any other Society , we can not determine or predict the future price of Land.
I know that your comparison is only between different plot sizes, but things can change any moment by the number of buyers or sellers. Thanks for sharing a wonderful analysis.

Observer replied on Thursday, November 29, 2012 11:04 PM PST

Dear SIM,

Along with considering very important factors like Supply and Demand, there can be benefits of using the kind of analysis mentioned above. Demand and supply is very important BUT it changes the price only. Demand and supply does not and cannot change the worth. A smart investor has to research and be aware of the approximate or exact worth.

I would say at the very least there is no harm in using such techniques and analysis to find out the better investment options. Some times temporary developments can create inefficient markets for short periods of time, screaming to be taken into consideration.

For example, recently about 2.5 months ago, due to (temporary) large supply DHA 9 5 Marla file went down to as low as 9.15 Lakh with a very liquid market, whereas 10 Marla file was at 17.40 and 1 Kanal file was around 28, i.e. both remained stable. This represented an extreme MF of 1.9 (5 to 10 Marla) and 1.6 (10 Marla to 1 Kanal). Now based on much more reasonable MF of 1.6, the price of one Kanal should have been 24 Lakh and 10 Marla should have been 14.75 Lakh for 5 Marla to go as low as 9.15 Lakhs, and hence that disparity is now cleared with 5 Marla gaining nearly 30%. That is a huge gain in just 75 days. Due to this MF disparity other sizes in same phase gained around 10% only in the same time. Any disparity in these prices of different sized plots within same phase and scheme can be similarly used to your benefit as an investor, especially when someone is thinking about buying, there is no harm in considering such factors to narrow down the relatively better options.

This is just one tool. A smart and educated investor ought to have many such tools in his/her Zambeel to give him/her the edge over the herd.

BTW: you said "Brother Observer", which is correct, but how did you know it could not be a "Sister Observer"? I did not mention my gender anywhere, did I? See, I found some cognitive bias right there (smile). Just like that ordinary buyers and sellers have many cognitive biases which create disparities and gaps between PRICE and WORTH.

Demand and Supply determines the direction of the market. It moves the market. But the result of Demand and Supply is not always an efficient market. Usually it is the opposite, in real estate.


nadeem replied on Saturday, December 1, 2012 12:50 AM PST

anticipating or forecasting in this case is very difficult due to the following factors or market indicators

1. inflation rate and depreciation of currency
2. availability of buyers and sellers
3. cost of construction
4. interest rate
5. goodwill of product
6. low or high risk factor

Humza replied on Saturday, December 1, 2012 09:00 AM PST

I love this type of discussion and analysis. Well done and highly appreciated everybody efforts and knowledgeable thoughs.
Courtesy: LRE

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