Tax on market value

Buying Property Buying Process
#84

Dear Forum Members

I think Real estate market still has potential, as there are many other factosr we need to address when we give our opinion/analysis. We should keep our emotions on a side when we give our opinion/analysis.

  1. In Pakistan unfortunately real estate is the only segment which has been profitable over the past many years, if we see our other segments like (Agriculture,Industries, Trade, IT etc) they are in the decline due to shortfall of Electricity,Gas and the security conditions in Pakistan, as we all know our major segment of the industry is shifted to Turkey and Bangladesh.

  2. Couple of members had mentioned that investors will move to UAE/Dubai, but we need to understand the Dubai real estate market also. I am working in Dubai in Real Esatate Sector. So i thought to share my opinion with other members.

  3. In Pakistan in real estate there are many big guns but there are a lot of small investors also like the people who are working in different companies as executive and they invest in property so that in the future they can sell their properties and let their kids to complete their studies.even the small or med size people who are running their shops etc. They normally invest in 5,8 or max 10 marla plots.The prices starts from 2.5 m to 7 m rupees for these plots.Why these people invest in properties bcoz the banks are not offering them the good interest rate, so most of them left with one option that is to buy a plot for few years and then sell it once it increased.

4.I personally believe that real estate marker in Pakistan is much more stable comparing to Dubai. I think most of the people who invested in last 10 years in real estate they all are the winners, but in Dubai the market is not stable at all. It goes up and suddenly drops down, if any body in the forum is watching the Dubai market in last 10 years he must have notice many ups and downs.

5.I agree with few members that the market will get slow but prices will not go down much. In Dubai only the big investor can invest,then where the small investors will go?

case study

I will compare the Dubai and Pak real estate investment for 3 years.

In Dubai the cheapest studio apartment will cost you around 12 m whose rental income is approximately (8-10%), which after paying the service charges of the building (1-2.5%),after paying the service charges your Rental income goes to (7-8.5%). We all knows that if we invest this money in Pakistan there are chances that this 12 m can goes to (15-18 m) in 3 years which is around (25-45 %). Even if we pay the new tax still our profit would be (22-40 %) which is still better than the Dubai but the Rental income of Dubai is (21-26 %). Keeping in mind that here the property prices does not increase much your profit is your rent.

So i think only big investors may switch to Dubai but i have a very strong believe that Small investment still would be profitable. It just the matter of time we should not be desperate and see in 2 months where the market goes.

#85

Sorry to clarify in the above post not 500000 lakhs but

1 kanal= 5 lakh rupees what bahria declares as market value.

1 KANAL = 5 LAKHS bahria cvt payement basis

BUT market value

50 lakhs- 1 crore= according to 4% cvt prior to 2016 new system.......SO ACTUALLY ONE HAS TO PAY BET 5- 6 LAKHS ON 1 CRORE DEAL from now on wards......

{{ NOTE' ITS purely my personal opinion and not to be taken as VERDICT OR DECISION BASE IN ANY CASE}}} as it could be wrong as well.

#86

Many thanks Dk bhai same to you.

Regards

#87

Welcome nadeem bhai.....

@SAADI....ok sir ,i am not aware of the fixed value rates of property from bahria/dha, thanks for the input....what i wrote is on the basis of current sale/purchase cvt money payment sir( may be i have put it wrong ,but that's whats on their website) , BUT from which date sir they( bahria/dha) have fixed market values of plots? ,if you have some insights.... Will wait for your analysis ...thanks.

IN DEC 2013 i purchased 5 Marla plot in phase 8...and paid 26000 rps as transfer plus 7500 cvt= 33500 rps

so 7500 cvt=185000=1.85 lakh that's being plot value according to cvt

BUT market value today 13 times of 1.85 lakh ie= 25 lakh plus

SO 4% CVT on this current value= 1 lakh rupees ...really puzzling..........

#88

@ DK sir first of all i don't know why Bahria apply cvt on smaller plots since it is applicable on the plot size of 500 sqyds or more and that is what is being followed in dha..Now let me clarify everything as some people are uselessly making hue and cry..First of all i need to clarify that what type of taxes will applied to the buyer if one wants to purchase property.

1-Capital Value Tax i.e CVT

2-Advance Tax for the property of book value above 3 million.

Now let me tell you that according to this new mechanism book value of dha 1 is revised at 63 lacs where as book value of dha 2 is expected to be 5 million. Now what charges would a filer has to pay is listed as follows:

1-CVT at the rate of 2 percent of the book value i.e 126000 for a kanal plot in dha 1 and 1 lac for a kanal plot in dha .Earlier it used to be 50000 because the book value shown was 25 lacs.

2-Advance tax in case of filer is 2 percent i.e 126000 incase of dha 1 and 100000 in case of dha 2. Now here comes the point that this advance tax is adjustable in your final returns so goodie goodie for a filer.

3- Advance tax in case of non filer is 4 percent i.e 252000 incase of dha 1 and 200000 in case of dha 2 and is non refundable in this case.

Now if an investor has 1 crore 75 lacs black money with him to buy a plot so that he can whiten it, he would willingly and happily pay this amount..But why?

Reason is if he has earned it through salaried means he would have to pay 1422000 plus 30% of the amount exceeding 7 million as tax to whiten this amount.

If he has earned this money through business means he has to pay 1319500 plus 35% percent of the amount as tax to whiten it.

If he can whiten this 1 crore 75 lacs by just paying 252000 in the form of advance tax, why would he think to shift himself to another business where one has to face unjust taxation rates.

One thing i want to repeat is that it is not like this that i have bought a plot for 1 crore and state bank would declare this property at 1 crore..Rates fixed would be much lower.

I am again saying this is mafia's share and nothing else.

One more thing i am not against taxes but i have other reasons due to which i am against this taxation, not only on property sector but also on every other sector of Pakistan.

#89

Hello all,

Can anyone please explain the following for a layman to understand?

1) CVT in percentage for filer and non filer

2) CGT (Same as above)

3) Advance tax (Same as above)

OR

Any other applicable taxes on sales and purchase

Regards

#90

Lol.. You guys have confused the already confused awam... (no offence :-)

Real estate IS NOT going down, CPEC and other developments (ring road extension in Lahore just to mention one) are not letting it go down. (could be stagnant for 2,3 months until the awam gets clear about the taxes which at the moment are totally confused).

Many in-power politicians own real estate ventures (KHAWAJA SAAD RAFIQ owns Paragon city Lahore)

NOTHINGS changing much, DO NOT panic, RELAX and HOLD your properties for atleast 2,3 months.

#91

@Zahid

CVT, STAMP DUTY are collected by the PROVINCIAL government after the 18th amendment.(regardless of filer/non filer). It is 5% of the DC VALUE, yes i repeat DC VALUE even after the latest tax amendment which has created a hype due to the ignorance of awam. FBR has NO issues with CVT, STAMP DUTY collected against DC rate even if the market value of the property evaluated by the SBP is 100 times more.

10% CGT on the profit earned is for filers only, NOTHING new except the holding period. NOTHING to worry about that.

Advance tax rates have been doubled. Still not as horrible as some people depict.

If the total kharcha of a transfer before the tax amendment was 4 lacs, it would be 6-7 lacs now after the slight increase in DC values and advance tax.

The only thing to worry for black money holders is, if FBR suspects a property declared is undervalued, it will be referred to SBP for evaluation. NOT all the properties will be evaluated. But im sure black money khiladis know the way out, so overall, not a problem for real estate.

#92

Thanks Fahad

#93

Don't be surprised if property prices of areas like DHA phase8 come down by 80-85% plus! No one I mean no one will buy a property for 4-5 crore all white money! This is exactly what government is targeting here.

Problem is not the Tax but disclosing the source of income. Exactly what gov did with banking transactions. Everyone was saying it's not practical and government will have to take back their desicion but the government implemented it even with all the hurdles.

People affected by this new law will try to make it a political issue but a very small percentage of the population and in general masses will appreciate it and help the current gov politically too.

#94

Is this new tax going to effect plots having value less than 3 million ?

#95

@metacat

agar yousaf saab ki prediction aur khwahish dekhein tau naye tax se 3million k plots bhi affect hongy, ap 3million wala plot apni Mehran baech k kharid sako gy.. LOL

@Yousaf

tax on banking transactions is totally different thing, it was not a procedure , just a simple tax that is easily implemented through a computerized system. And that too was reduced and tax filers were exempted from it.

This property evaluation is a whole different story and complex procedure and the evaluation firms are themselves not clear about many aspects till today , the 8th of july.

I am afraid your dream of buying property for peanuts isnt going to be fulfilled anytime soon.

#96

I was wondering is there any annual tax introduced in new law on parked plots

#97

Fahad bhai or any other tax and property guru please answer it as it may help thousands:

If a guy (a freelancer IT person) worked hard for many years and saved some money and then also with some financial help from family members bought a house (120 sq.yd @ DC price 11 lacs, when market value was 20-25 lacs) for purpose living in 2007 and still living in it.

How will he be effected with these new tax laws ? Specially if he sells out his house now when market value is approx. 1+ crore now.

(Please note that most of his earnings is from services (web/graphics/internet) to foreign clients who send payments through regular banking channels. The person however never filed taxes or obtain NTN believing that: 1) He is from IT that has many tax relaxations, 2) most of his income is from abroad and is tax exempted and most importantly 3) whatever he earns is already not sufficient to meet his family expenses so he has no tax liabilities.)

An accountant told him that 120 sq.yds house is exempted from taxes and you do not even need to declare it since 120 sq.yd house is considered as part of basic necessities of life. The taxes and declaration start from 250 sq. Yds and above.

Is that true?

In my opinion, this type of regulations seriously effect the genuine earner of the country and he seriously starts thinking to leave the country. Even if the govt. Plans to catch big thieves and tax evaders: 1) Why don't they start from withing own lines first as a positive gesture, 2) why they never clearly advertise the bracket that who will suffer and who will not. 3) even those who are going to suffer should be given due time to make corrections instead of sudden implementation of so-called writ of the govt as they did in Driving License case.

In our country Non-Filers actually pay more taxes at exorbitant rates, bank transactions is just one example, still called TAX CHORS whereas those who are openly exposed in Panama Leaks and are corrupt called honorable LEADERS. What a shame really !

Who is damaging the country more ? An ordinary citizen who is already paying half of his bread as undeclared taxes or the LEADERS who openly do corruption and that is in billions?

#98

Dubais real estate is very very risky when compared to Pakistan's.

God forbid, only Indo Pak war or any other disaster of that scale (Allah na kare kabhi ho, Allah humare mulk ko apny hifz o aman mai rakhe) can create that horrible situation of real estate market that some ignorant, opportunist people are depicting now.

#99

Real estate has been made a fish market because of the sudden buying and selling of few opportunistic investors which causes market to behave abnormally. Suddenly prices go up and when ordinary people start getting into the artificial market because of the bher chaal, opportunists start selling and prices drop suddenly. Ordinary investors are the real loosers and bogus investors are the gainers in these scenarios.

These new changes will discourage these bogus investors because of reduction in profits to more realistic values and also because of more impact on them if they want to sale and purchase again and again.

So genuine buyers will be beneficial at the end if these changes are implemented.

And bogus investors will be discouraged and that will have a positive impact on prices and we will not see artificial price increased that much.

#100

The best approach for small investors could be, to wait and see for the next 6 months before any final conclusion ,as after 6 months things will shape clearly in either direction, i.e positive or negative.

yes one should not panic bcz ,if it hurts than it would be for all and not for some specific individual, so relax and have some honey chilli chicken and black coffee..........avoid coke.........summer should be enjoyed in its true colors.

'"""""""You cannot change the ocean or the weather,no matter how hard you try, so its best to learn how to sail in all conditions.""""' ANONYMOUS""""

#101

There will be double tax impact on no filers compared to filers. As mentioned by Yousaf also, this will discourage non filers to invest in property as it will highlight them and can get them into trouble.

Ordinary salaried citizens like us or overseas people dont have to fear this change as they are automatically paying taxes and have nothing to hide. Its the bogus investors with lot of money to invest and to move the market artificially, they will be reluctant. Because they cannot show the sources of their income as it is either not coming through legal ways or they have not paid taxes on it. So as they are doscourage, at the end it will be positive change in the real estate marker for the ordinary and majority of people.

#102

Dear Muhammad,

Nothing in real estate without investors.Any housing society can't run without these investors.

Are you know why Bahria phase7,8 prices become down in last two years?Because MR need these investors in BTK to run project.

Are you know why Multi become down because investors pullout investment for run FT and now they want to run FR without land.

Dha is front of you where 75% army officers who are the investors from beginning.

Go to any new CDA sectors where 70% investors.

Will you invest in any project where no land and no development?Genuine buyers will never ever enter in any new project until he see land and start development.Yes investors are the who enter first in any new project.Cda.Bahria,Dha or Multi will never ever start any project without big investors.

Regards

#103

Agree with you Nadeem.

N because these artificial investors went out, prices came down. And many ordinary citizens and genuine buyers got the opportunity to invest in these societies. And now you see the market to be stabilizing. In normal circumstances, there will only be a natural and steady growth, not a jack pot in a week, like its happening now at some places.

we all know what happened with ordinary people in enclave2 because of bogus investors.

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