KARACHI: Pakistan’s real estate sector seems to be experiencing a slowdown in activity as stakeholders are now getting used to new regulations and the tax regime.
The rough patch comes after the government introduced various changes in a bid to increase its revenue and control the flow of illicit money into the sector, cornering speculators and non-filers of income tax returns.
However, in a survey conducted by The Express Tribune, several real estate agents say there has been a major slowdown in business for several months, and it started even before the government restricted non-filers from buying property above Rs5 million.
The PML-N government in its last budget barred non-filers from purchasing property at a declared value of over Rs5 million. The move came as a blow to speculators and even most genuine purchasers of property who happen to be non-filers.
Real estate agents say the sector was experiencing a slowdown for months and the sanction only added to the woes. They argued that registration issues with the government have halted transactions in the sector.
“Business is down and we have only been able to strike small deals mostly for renting property,” said Mohammad Qamar, an estate agent.
Another estate agent Waqas Ahmed said the slowdown was the result of issues at the government registry where the process had come to a halt.
Real estate agent Mohammad Kamran pointed out “it takes only Rs5,000 to change a non-filer’s status into a filer,” a service which his firm gives to potential buyers, who buy property through it.
However, he was also of the same view that property business had dropped significantly in recent months.
According to Association of Builders and Developers (ABAD) Chairman Arif Jeewa, there is a need for clarity on the 1% tax imposed at market value at the time of sale and purchase of property, which he believes will only be resolved after the new government comes to power and takes the decision.
He said the government’s restriction on non-filers had shied away overseas investors who had stopped pouring money into property business in Pakistan. However, he was not aware whether some technicality was involved in it.
Jeewa said tax rates in Pakistan were too high because of which people opted to stay away from the economic loop. “Make it flat 10%, then everyone will come running to become a tax return filer,” he claimed.
However, according to an official of the Board of Revenue, the provincial government has placed no restriction on registry, but an important document – no-objection certificate (NOC) – from the Sindh Building Control Authority (SBCA) has been made mandatory, which has been the reason behind the slowdown.
“Around 80% of the buildings and houses in Karachi don’t have the SBCA NOC and getting it is an arduous job. It has actually affected the resale of houses. Otherwise, plot sales are in full swing at the moment,” he said.
He also accused investment mafia in Karachi of behind volatility in property prices. “Money is more involved in property business in Karachi as compared to effective demand and only investors have become sluggish. Meanwhile, people who want to buy a house to live in are as active as before,” he said.
The official said after the government increased taxes 10 times, a person making investment in a property would not register it in his or her name. For instance, a person, who earlier paid around Rs10,000 in taxes on a plot of 100 yards, will now have to pay around Rs80,000 for the same size of the plot.
Owing to the sharp rise in taxes, he added, the investor would sell the plot to another buyer without getting the property registered in his or her name, which had not been the case before.
Published in The Express Tribune, August 18th, 2018.