Property market befuddled by tax measures

Published: August 26, 2016
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Expert says taxes will bring transparency, curtail money-laundering.
PHOTO: FILE

Expert says taxes will bring transparency, curtail money-laundering. PHOTO: FILE

LAHORE: The realty markets of Pakistan remained stagnant in the first month of fiscal year 2016-17 after posting an impressive growth in the six months that preceded it.

The increase in property taxes, announced in the budget for 2016-17, was the source of unease in the real estate sector in Pakistan. But a bigger impact emerged from the Finance Bill 2016, which would alter the criteria to calculate the taxes.

Although the government would significantly retreat from the stance in the bill after extensive negotiations with the real estate stakeholders, its impact lingers. As a result, the property market registered a slow performance in terms of activity and prices in July.

Real estate sector handed tax amnesty

As per the data compiled by Zameen.com, property prices in Lahore, Karachi and Islamabad remained steady for the most part in July, while declining in some cases. DHA continues to be a good bet in the three cities.

Lahore

Lahore’s real estate sector suffered in July, showing insipid numbers. In DHA Lahore’s Phase VII to IX, a one-kanal plot exhibited a price growth of 1.04%. Other major localities, including DHA Lahore’s Phase I to VI, Bahria Town, Bahria Orchard, Wapda Town and LDA Avenue-I languished.

Only Bahria Town showed a controlled rise of 1.47% in the 10-marla plot category. Bahria Orchard registered a price drop of 2% while DHA Lahore’s Phase I to IX maintained stability during the month.

Islamabad

The real estate sector of the federal capital registered unimpressive numbers in July. While Gulberg Residencia showed some activity, with a growth of 1.94% in prices of one-kanal plots and 1.15% in prices of 10-marla plots, other prime locations registered stagnation or slight price drops.

DHA Islamabad was not exempt from the impact of the new property tax regime and registered unimpressive numbers. Even promising housing societies such as Sector B-17, Sector E-11, Sector F-11 and Bahria Town showed a lack of activity and price drops during the month.

Property tax measure: Govt overestimates revenue collection from real estate

Karachi

Karachi’s property market had performed impressively during the first half of the year, but the tax-related confusion took its toll on the city during the month of July.

Activity was observed to be quite slow and DHA was the only project that saw a controlled rise in the value of 250 square-yard plots. All other localities clung onto stability, including Gulshan-e-Iqbal and Bahria Town Karachi. Moreover, in DHA, there was a 0.32% drop in the value of 500 square-yard plot category.

Background

Following the announcement of the budget for 2016-17 and the Finance Bill, which proposed increased property taxes and altered criteria to calculate the taxes, sale and purchase activity across the country practically ceased. This alarming situation led to real estate stakeholders protesting against the new tax regime.

After negotiations, property valuation tables for the purpose of tax calculation were released by the Federal Board of Revenue (FBR). However, it seems that buyers are still confused about the situation and the unimpressive numbers attest to that. “Even in Dubai, the transfer fee on property transactions was increased from 2% to 4% in 2014. Though it resulted in fewer transactions, the overall result was positive for the market because it discouraged property flipping,” said Zameen.com CEO Zeeshan Ali Khan.

“Similarly, in Pakistan, an increase in transfer costs will curb property flipping and the property valuation tables issued by the FBR will bring transparency and curtail money-laundering through real estate.”

Published in The Express Tribune, August 26th, 2016.

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Reader Comments (11)

  • Observer
    Aug 26, 2016 - 7:31AM

    Drop figures are not correct. Dha karachi values have dropped by 20% and Dha city prices have dropped by 40%. Buy and sell has come to a halt.Recommend

  • Hasan Khan
    Aug 26, 2016 - 8:43AM

    FBR was taken for ride by the Real Estate agents .FBR should have stuck with the law as was amended by Finance Act 2016 ie valuation of property by Independent property valuers
    Back money needs to be discouraged and sucked out from the economy.
    FBR is need of urgent reforms and cleansing of dead woods and corrupt officersRecommend

  • Asad Shairani
    Aug 26, 2016 - 9:18AM

    Unfortunately “growth” in the real estate sector essentially means the prices going out of the range of most citizens. Recommend

  • Ussama Yaqub
    Aug 26, 2016 - 10:50AM

    Property market is ‘befuddled’ because they are being made to pay taxes … Common reaction among the otherwise ‘levelheaded’ businessmen of Pakistan! Recommend

  • Shahid Akram
    Aug 26, 2016 - 11:10AM

    Pakistanis do not want taxes but they want facilities like Germany, USA.Recommend

  • Trader
    Aug 26, 2016 - 11:13AM

    Poor research. Prices have decreased by 10-20 percent in DHA LahoreRecommend

  • Imran
    Aug 26, 2016 - 11:30AM

    Please spare us these paid opinion pieces.
    The so called ‘market’ is a scam, a sham a rigged place where all the fraudsters sit and rob the masses.
    It has been a melting pot for stolen, untaxed money and the government for their unknown selfish reasons has taken a step which has incidentally worked in favour of public.

    Why do you not see this as triumph of ‘free market economy’ or did it say in your books that market only goes up.

    The market will go down and nose dive…good for us. Plots were never meant to be used as trading chips and ‘gold blocks’. Recommend

  • hammad
    Aug 26, 2016 - 2:50PM

    Wrong. People have no problem with paying the increased taxes. They are just afraid of documentation and income tax notices. Unlike UAE, we have no documentation of source or destination of income in general. Even if it is white money, investors just want to lie low, evade FBR’s claws and avoid yearly nags like income, wealth tax etc.Recommend

  • Malik Saab
    Aug 26, 2016 - 3:44PM

    Market prices are not decreasing, but infact they are settling to the realistic level. Well done government in this regard. The decrease in prices is a boon for those who want to buy and build their houses in a reasonable level. I hope the prices will decrease further so that middle class can afford the house in a good locality as well. I appreciate the stance of PMLN on taxation. Everyone must pay taxes. Recommend

  • Usman
    Aug 26, 2016 - 5:42PM

    Great job by Government. Sooner or later such actions need to be taken if Pakistan has to survive. Most importantly, anyone buying the property has to justify the income!! enough of the Black money parking in property business…Recommend

  • sterry
    Aug 28, 2016 - 12:58AM

    @Shahid Akram: But the facilities that Pakistanis enjoy overseas are paid from her hard working citizens who pay taxes. In Germany a Europe, tell me how many refugees pay tax. hey rely in the money collected from the taxes of others. Until Muslims start to pay tax, their communities will never evolve. The common excuse is that government eats the money so I don’t need to pay tax! They don’t know that the Westerners make the same complaint of their governments and leaders but the Westerners still pay tax.Recommend

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