Clarity at last: answering 2018’s most pressing real estate questions

Change can be confusing.

When it concerns something as vast the real estate sector, or the affairs of state, its complexities become multiplied. And so do the possibilities for the generation of loose ends.

2018, truly, was this kind of year for Pakistani real estate. A year dominated by change.

The 2018-19 Budget, along with the announcements made around the time of its public release, significantly impacted the real estate sector. These developments were, naturally, followed by a number of confusions:

• Will non-filers be allowed to buy property valuing greater than PKR 5 million?
• What about overseas Pakistanis? Can they buy property valuing greater than PKR 5 million, despite their non-filer status?
• Will the DC and FBR rates be abolished, as announced? And when?
• What will be the function of the Directorate General of Immovable Property (DG IMP)?
• How does the government plan to curb the issue of undervaluation of property?

Now almost seven months forward, we finally have the answers to all these pressing questions!

Non-filers and property valuing greater than PKR 5 million

The point of the current budget is to incentivise tax-filers, and penalise defaulters. This approach springs from the contention that wealthy people, capable of buying property beyond a certain value, should also be tax filers – and active taxpayers.

The current government, following the 2018 elections, considered lifting the ban on buying expensive property to facilitate overseas Pakistanis. The country, at that time, was in desperate need of foreign exchange— with remittances from overseas Pakistanis being one of its primary sources. A significant portion of these cash boluses is invested in the real estate sector.

Popular opinion banded against this move.

But the Finance Minister soon announced that the requirement of being a filer is not applicable to overseas Pakistanis.

Abolition of DC and FBR rates

The former finance minister, during the Budget 2018-19 speech, had announced that FBR rates were going to be abolished. He had also advised the provinces to disband the DC rates. This matter, according to the testimony of several property experts, may may have caused the most confusion.

Particularly in terms of questions like:

When are the FBR rates going to be abolished?

How will the DC rates be abolished?

None of the provinces, not even Punjab, took any steps towards the abolition of DC rates in their budgets. The transactions continued as before.

Soon after, the Directorate General of Immovable Property and its functions were announced – the government agency established to enforce these changes – but there wasn’t any hint of a rates abolition.

As it turns out, the FBR rates were enhanced (by 20%), re-announced, and imposed just this month. The new FBR valuation tables for 20 cities have come into effect. Their listed rates show an increase of around 20%, as compared to the previous valuation.

These FBR rates, in some cases at least, are still lower than the market rates.

DG IMP’s powers to question source of income

There is, however, one catch to this entire scenario. The DG IMP of FBR is now authorised to question the source of income of an investment which shows a difference between the FBR rates and open market rates.

This has brought an end to the three-year old amnesty scheme framework that allowed people to ‘whiten’ their investments up to the FBR value of property by paying 3% additional tax.

This, then, is the government’s plan to curb the undervaluation of property in the real estate market.

Do you still have any questions or concerns regarding the new rulings announced for the real estate sector? If so, you can discuss them with us in the comments section below. Alternatively, you can head to the Zameen Forum for a detailed discussion on the topic.