Lack of realty regulator blamed for missing target

Only 1,321 people have registered themselves in 2,125 construction projects

ISLAMABAD:

Around 2,100 construction projects worth Rs493 billion were registered under Prime Minister Imran Khan’s second tax amnesty scheme -- half than what the government had hoped for -- as an independent think tank sees absence of a realty sector regulator as a barrier to growth.

So far, 1,321 people have registered themselves through the online system of FBR in 2,125 projects, according to a statement issued by the Federal of Revenue on Friday.

Of these, 1,775 are new projects whereas 350 are existing ones, it added.

The FBR also gave a one-time opportunity to those 12,000 people, who had paid Rs2.6 billion in taxes to avail the first tax amnesty scheme in 2019, but could not file returns because of technical glitches in the system.

These people have been given two weeks’ time to submit their returns.

Sharing details of the PM’s second tax amnesty scheme, the FBR said the total declared investment made in the 2,125 registered projects came to Rs493 billion.

Read ECNEC approves three projects

The results show the outcome of the second tax amnesty scheme to be below expectations.

The government had expected that over Rs1 trillion projects would be registered till December last year.

However, the process took longer and the premier eventually gave six months’ extension in the scheme that too expired in June this year.

In April last year, PM Imran had announced his government’s second tax amnesty scheme for 10 months aimed at “boosting economic growth” and minimising the impact of the Covid-19 pandemic on the lives of the people.

The scheme allowed people to invest in the construction sector without disclosing their source of income.

The scheme was also offered on projects that were already under construction.

The FBR said it had provided all the required facilitation to the beneficiaries of the construction package which included the setting up of a dedicated web page, a dedicated email to address inquiries and an online step by step guide for builders and developers.

FBR Chairman Dr Mohammad Ashfaq Ahmad had also directed that ease of doing business must be ensured to the projects registered under the package for the construction sector.

He further desired that regular updates on the progress be communicated through media on a weekly basis.

A new report released by a think tank, Tabadlab, sheds some light on why Pakistan’s real estate sector could not develop.

The paper has commented on the latest guidelines issued by the central bank on financing for construction sector projects by the banks.

The report titled, “Central Bank as Real Estate Regulator: Can the SBP’s Latest Guidelines Help Meet the Housing Shortfall?”, written by Ibrahim Khalil, read that the central bank was overreaching its mandate by regulating the real estate sector through special guidelines.

The author argued that the SBP should trust the banks’ risk departments and risk committees to develop robust assessment criteria in light of international best practices to manage construction financing.

“If the SBP opts for such micro-management of processes, then perhaps there is merit to the commercial banks’ preference to invest in PIBs, instead of economy-driving, and consumer-serving products and services,” according to the report.

Pakistani commercial banks have more than half their assets in government securities, making record profits.

Read more Uplift projects at standstill in Pindi district

A little risk-taking by commercial banks in the construction finance area will not adversely affect the stability of the banking sector, according to the report.

It added that dealing with a delinquent purchase was the jurisdiction of the Real Estate Regulatory Authority (RERA).

The author has also taken a critical view of the SBP’s directions that the housing projects should open designated accounts.

“To have an escrow account for the purchaser deposits is usually prescribed under RERA or similar authorities in other countries. It is a consumer welfare decision and not at all related to construction financing.”

Instead of providing broad guidelines to commercial banks and allowing banks to devise their own criteria to achieve these aims, the SBP is formulating very specific guidelines, intruding into areas that should be RERA-domain.

When then SBP is encroaching into RERA functions, the central bank’s regulations will only apply to those builders, who will avail construction financing from lenders.

The new regulations “would end up countering the very effects the SBP wants to ingrain into the housing and constructing financing markets. The reason is simple: the SBP cannot substitute for RERA”, the report argued.

The assumption underlying SBP’s guidelines is that the availability of construction financing will entice the builder to comply with real estate regulations, bring additional transparency into the project and pay their fair share of taxes.

“Time will tell, but there is a chance that this overreach of SBP into real estate regulation will discourage the majority of the builders from approaching the banks for construction financing.”