Reverse Dollar Effect:

I have summarized in Table -1 the progression of property values against the value of dollars providing wealth status change over last 24 years comparing living in United States verses Pakistan. I have taken Karachi as an example as I have real data on the city due to my personal living, investment activities and engagement there in last 24 years. The analysis is eye opening, as we understand what has happened here. In the first 12 years 1988-2000 as the dollar kept appreciating against the Pak Rupee, investing power of expatriate Pakistanis (or a foreigner) remained intact as the conversion value of property despite a 30% rise every four years still went up to an approachable $100k from $60k (over 12 years) in line with the manageable inflation and increased buying power year over year. However after year 2000, the dollar stopped appreciating against the Rupee where as the property values kept rising at an accelerating pace as more direct foreign investment as well as wealth creation happened within the Pakistan economy.

Rise of a new upper-middle class in Pakistan

What we have seen in last 20 years and especially I last 8 years is the rise of a new upper-middle class which as much enhanced buying power and is able to maintain a much better living standard compared to upscale living in any modern country by way of affordability. TABLE -2 provides the data and progress of how this growth and transition has happened.

Comparing the worlds of the west and the east, one may notice that where as the cost of housing (which makes up the largest cost of the monthly expense for salaried people has doubled in last 20 years, the increase in earnings has been almost 4 times. A similar doubling in cost of living in the United States has seen no real increase in earnings (80 k from 65k) for salaried professionals. To me this is the single most easily comprehendible comparison to show the progress in buying power in Pakistan that has ultimately resulted in wealth creation.

Most Viable Investing Opportunity

Lastly, why is this discussion of wealth creation relevant to the topic of this blog? Simple, as the wealth creation is real, it will continue to drive the economy and the value of investments in the next 5-7 years. At the same time where the value of investments in the United States would likely decline for next couple of years and then stay flat afterwards for some years. All this in the context of stable or declining value of dollar makes a very strong case for investing in Rs now in the motherland and holding for few years. US$ 150K investment could triple in next 4-5 years where as the same investment may not drive any appreciation in US.

A viable idea for entrepreneur investors is to go for commercial estate investments that become a likely location for retail or consumer business venture and that alone can drive the value of proposition many folds.

Karachi is the capital of the province of Sindh, and the most populated city in Pakistan. It is located on the coast of the Arabian Sea in southeastern Pakistan, northwest of the Indus Delta. The city is the financial and commercial centre as well as the largest port of Pakistan. Population – Census (1998) 9,339,023, Estimate (2008) 13 million official (15 million unofficial). Karachi is the financial capital of Pakistan. It accounts for a lion’s share of Pakistan’s GDP and generates about 65 per cent of the national revenue. Most of Pakistan’s public and private banks have head offices in Karachi. The Port of Karachi and nearby Port Qasim are the two main seaports of Pakistan, and Quaid-e-Azam International Airport is the largest airport in Pakistan.