Growth in housing finance slows down sharply

Expert says higher tax burden weighs on investor confidence

LAHORE: New tax measures taken to generate more revenue from the real estate sector of Pakistan have dented the interest of borrowers in acquiring housing finance.

Statistics show that the growth in loan disbursements for the construction of new houses in the third quarter of 2016 fell a massive 94.53% over the expansion in the previous quarter.



Data released by the State Bank of Pakistan revealed that outstanding gross loans as on September 30, 2016 of all banks and development finance institutions (DFIs) stood at Rs65.85 billion, up just 0.23% from Rs65.70 billion at the end of the previous quarter in June.



According to market experts, the figure reflects the negative impact of new tax measures taken in the budget that have enhanced tax liabilities of real estate investors.

Now, the FBR assesses the fair market value of a property for tax levy compared to the previous property rates set by the district commissioner, which stood sharply lower than the market value.

In the first two quarters of 2016, loan disbursements for the housing sector grew 3.55% (Rs2.16 billion) and 4.35% (Rs2.74 billion) respectively, but in the third quarter (Jul-Sep), the increase was minuscule at Rs0.15 billion.

Leading economists and financial analysts hit out at the country’s economic managers for the sharp decline in housing finance.

“Normally, it is the middle class that takes loans from banks for constructing their houses, but they are now scared in the wake of uncertainty in real estate markets and new tax structures,” commented economist Dr Qais Aslam while talking to The Express Tribune.

He pointed out that market talk about Federal Board of Revenue’s attempts to examine the bank accounts of depositors and their source of income had further scared the middle class.



Aslam, however, was of the view that people should wait for statistics of the next two quarters to predict the future. “Normally, the first quarter of a financial year doesn’t depict the true picture for the rest of the period.”

Financial analyst Mubashar Bashir suggested that banks needed to expand into new cities for growth in credit demand.

Published in The Express Tribune, January 21^st, 2017.

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