Many estate agents and real estate analysts anticipated a slower second half of the year, depending on how the Budget 2016-17 treated the real estate sector. However, I doubt whether anyone predicted that this much of the budget would be dedicated to imposing new regulations on this industry. What we find in the budget is a complete revamp of the whole property evaluation mechanism and a rise in the percentage of existing taxes.
The Finance Bill 2016 has unearthed many new complications in property tax; something that needs calculations specific to individual housing societies and that too at a different rate for cities falling in Category A, B and C. It appears to me that the real estate industry has been provided with a well thought out plan. This feeling is based on the fact that, not only does the Federal Board of Revenue (FBR) appear to be prepared to release the related documents soon, but the State Bank of Pakistan (SBP), too, is ready to carry out the necessary tasks.
On July 11, 2016, SBP released a list of approved evaluators for different cities categorized as per the stature of their respective real estate markets. You can view the related details and the list of SBP approved evaluators by clicking here. The way related details are shared, it is beyond any doubt that the property tax amendments introduced just recently is the work of brainiacs, who closely monitored the real estate market in order to mint money out of it. Sadly and obviously, they paid little thought to repercussions of such sudden and strong amendments on a dozen sectors that link directly with it.
The real estate stakeholders and dealers have massive concerns over the property tax amendments as they are already seeing its effects in the form of little real estate transaction on record in the last two weeks. The slow month of Ramadan followed by the restrictions imposed by the Budget 2016-17 and Finance Bill 2016 have further reduced activity, leaving many folks wondering if there is a plan in place to deal with the number of industries that will suffer from this significant blow to the real estate sector.
Many known dealers’ associations throughout the country are preparing to stage protests against the Finance Bill 2016. In fact, many such protests are currently being shared on social media. As you read these lines, certain theories are also being circulated among the concerned parties. One such theory is a belief that as the percentages of new taxes is much higher, negotiations might bring them down to an acceptable level and things will eventually settle down to some extent. Yet, these folks agree that the market will nonetheless never be the same in terms of real estate transaction volume.
Rumour also has it that many known private and semi-private real estate developers are already negotiating with the FBR to set a reasonable Deputy Commissioner (DC) rate for their projects. Some of these developers have already shared the new DC rate through their registered dealers. These lists are also being shared through WhatsApp and other similar mediums; people are relieved to think that if the new DC rate for prime developments could be not-so-dreadful, it might be even more reasonable for smaller and less posh housing projects.
Despite the ongoing debate between the estate agents and real estate investors, there exists a stark ambiguity about who is going to pay how much in terms of which taxes. The way information is being released on regular basis, I am hopeful that many of these ambiguities will soon be cleared. I also expect that these amendments after negotiations will not be as harsh for the real estate market as they appear right now.
Whatever happens, rest assured that Zameen Blog will keep you posted. If you have a say on this, use the comment box below.
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Well researched article. Thanks
This is an open act of State Sponsored “FINANCIAL TERRORISM”.
No one would be against regularizing Real Estate business or taxing property exchange if done properly and reasonable and not by terrifying the people.
You are right, its a well thought and orchestrated plan that has been launched to spread scare and harassment not realizing that its not only going to hurt just the mega investors/builders but also hundreds other allied business activities would be affected and thousands would loose two ends meals. Like several other Bulldozed bills and legislative amendments, this has also been brought in with the speed of light. Damage is already done; property market is already sinking; ultimately they will come up with another AMNESTY to collect billions but it will take several months to years to restore investors’ confidence.
Why just everyone discussing about the tax collection in place. Why not everyone gather together and ask the officials through proper channel where the tax money is going? And why Pakistan is fucked up with IMF loans every year?
It seems Pakistan is a Gold mine for politicians who come in power rule over the people fuck them up and build empires in other countries like (Nawaz and Zardari) …
My friend – nothing will happen – Government will and should apply the new tax if we want to eradicate theft and corruption from not only the real estate but from other sectors.
Just imigine, just 4 marla commercial plot in dha – the price is Pkr 50 – 70 m/m – who has such funds and who can buy ? all is about speculation and money is earning money by just ink some paper work and going to dha and bank.
If the government has good tension to serve the poor and middle class people who currently can not even think to invest and/or participate in dha real estate business. If this act is against the interest of people, in the next election, this government will be out. But I hope they will continue until achieving their goals-
One can argue that the taxes are high. Attempts can be made and should be made to negotiate the taxes down. But the taxes has to be calculated on the actual price of the property .There is no legal or moral justification to say that a false price be allowed to be shown on sale agreement. However the Govt. Should not go into the past . In fact the Govt should offer amnesty to all deals done in the past years , this is because the Govt is at fault too. Why were the D.C. values so wrong. The public or property dealers did not make the D.C. valuation tables , it was the Govt. who made the D.C. value lists.
A shop bought @ rate of 11 lacs per marla in actual but Government rate this area 40 lacs per marla what is this?
I was watching Kamran Khan show yesterday and host was appreciating government new property tax policy as it will divert investors to other businesses of Pakistan.
My question is….Which businesses Government diverting for? where no proper electricity supply, where every single govt employee is corrupt, no check and balance, most of the businesses hold by ministers families where a common citizen will never compete them, and our paid tax flourishing their personal businesses & assets outside Pakistan. Now they open new window for corruption involving evaluators to loot us.
Sir, if you are a typical real estate investor, you hardly pay taxes so you can’t really complain about the services you don’t get which you don’t pay for. And you ask for sale proceeds to be made out in different names, actual price agreement to be destroyed after transfer of title.
I for one am praying that all this will hopefully come to an end.
Arif Ji, i m not a typical investor even im not investor at all but an ordinary Pakistani citizen.
For your information there is no single Pakistani who is not paying tax less or more but we do.
In this new property tax net Only small people will be hanged, big fishes r enjoying without problem but unfortunately paid ppl still praising such policies.
People pay tax on everything you buy from match box to car and many other taxes
True – if the government is sincere it should apply the tax to through out speculators from the market who are looking million of funds just by speculations and this is putting the middle and poor people into depression and depression.
Muje 11 lakh per marla pe aik shop mil rahi or state bank ne wahan ki price 40 lakh per marla lagai he. Main kia karon ab? Kia yeh zamer farosh muje se 40 lakh per marla kharid sakte?? Muj se kharid lain same rate per jo yeh laga rahe…
Good argument – Government should revise its decision fixing the price.
Samra, you have carried out a good assessment. However, keeping tangible aside, if see the current national picture, there is a scenario emerging for a possible compromise between the Government and property holders represented by dealers. The emerging environment if read minutely, there are limited options available with the Goverment to confront a huge real estate sector. Hence, I believe there will be some effect but not as sharp as being predicted.
…..
So, in my assessment there is no need of harassment, Government will opt for compromise….Instead of confrontation.
Regards
Brig Waqar Raja
Investment Point Islamabad
0320 5010777
so the government should sell out and accept that people with black money should not be subject to taxes?
Its a well thought out plan of the Gov. They have been working on it for the last 3 years. May what come this new laws will be implemented just like how the Gov did with the tax on banking transactions.
Brig Sahib – the current real estate market is far from the reality – just speculative – rates jump 30% from the morning rate in the evening -therefore, what was happening in the past to establish an real estate office and start making money by arranging deal between sellers and buyers. Now no more – only professional and committed business will survive and other non professional will disappear. Further sooner or later this market will have correction. Therefore, investor should be very careful in their investment decision. Just wait and see and keep the money in the pocket until situation stands firm
Dear Samra,
is that true that these heavy property taxes are only applicable in Punjab? As per my source these heavy taxes are only in PUNJAB and by CM.
Very sane decision by Govt. Real estate has been a safest, but long term investment. During past one year its prices have been jacked up in matter of hours and days unimaginably by gambling and speculative trade. Real home seekers have been kept at bay. They are now compelled to hire accommodation on rent by sacrificing other essential needs.
And what makes you think this new model of evaluation will provide a breather to the home seekers? its a well thought plan to looting the money out of investors pockets. Home seekers had many options until now in various locations but with involvement of third party govt regulated evaluators, im unsure of what investor or buyer can drive but govt will certainly evaluate property on higher prices for max tax collection. bottom line, these people have sort of killed property market.
Get a life man!
Couldn’t agree more. Been looking for 6 months and horrified at the way prices have gone up weekly. Someone even refused to do a deal with me because I am paying from savings from my taxed income plus a mortgage. And their demand was to destroy the actual price sale agreement after the transaction, plus pay the difference between the DC and actual value in pay orders of less than 1 million made to out to several names (which would be given to me verbally). No bank would be willing to meet these requirements. And finally the guy decided that even if i were to be able to pull this off, the valuation report would remain in the Bank’s records, so why sell to someone with white money when the market is awash with black money.
Delighted that hopefully all of this rubbish will end. For once, the government has taken a sane economic decision.
EXCELLENT STEP FROM THE GOVERNMENT SIDE TO STOP GAMBLING AND UNREALISTIC PRICES IN THE REAL ESTATE.
You are right Mr. Nadeem. I am with you. I think we must all stand up against this corrupt mafia who just want to extract every single penny from our pockets.
Pakistan has third highest corporate tax rate in world with lowest public services values.
http:// tribune. com.pk/story/1017179/world-bank-report-high-tax-rates-heavy-administrative-burden/
Tax paid by people of Pakistan = Corruption of Beauracracy + Debt Servicing + Money Laundering of Politicians.
So nothing comes back to people in the form of acceptable public health services, clean water supply, sewerage management treatment system, Solid wasted management, Traffic management, Transportation services and management etc.
These corrupt political parties from Pakistan should be kicked out and drain back the money they have taken away from this country.
Their is a property tax, then CGT, then income tax on rent and then on income.
Roads looks like Garbage bins and forest tracks with nalahs. Electricity is not available 24 hours. Electricity prices are like we are living in USA/UK where their earnings are atleast $1000 per month per person.
Are we living in Paradise!!!
First pay taxes then demand services.
All stand together to make corruption offical!!! bhai what will you people protest on?! not paying taxes?! not declaring the real market value of a property?!
Army should start to sit and think about how to cope up with these thugs and under the name of “National Reforms Movement” should punish these powerful corruption mongering polititicians and their underlying buerachracy and should establish a system where people can go and ask for prompt justice not the old school Judiciary where it takes years to establish a case.
Wow! So the government is chor and it should be taken down because people like you don’t want to pay Taxes and do business on black undeclared money. Some old tactic of different mafias to involve politics to keep doing corruption! I think the gov will not back off just like the tax on banking transactions. Also majoirty of the people really appreciating this step of Gov.
Dear Samra,
A Good Article, But about taxes we shall relax as the higher rates are going to be negotiated and will be lower with lesser than expected effects as soon as the details are out.
While generally this seems a crack down on booming real estate, but in actual this will control over speeding of real estate development, which at this pace is leading to a crash as gap between availability of plots/ houses and need is increasing . Which means that sooner or later the stoppage of demand along with expansion of options like DHAs in Multan, Bahawalpur, Peshawer and soon in Faisalabad will slower markets of cities like Lahore. Which are now over stretched with societies with lots of unused lands and plots available with inside the city while populations have moved beyond New Bahria, DHA 9 extention and Bahria Orchard etc.
If we see Lahore is developing along Feroz pur road, Raiwind Road, Canal Road, Multan Road and Defence road and there seems little rooms for more societies. So in 5 to 10 years time I see irregular and desperate real estate industry moving in just few directions that to across Ravi and Bhai Phairu etc. Which shall remain 2nd class areas being beyond the geographical barrier, ultimately leading to increase in High Rise and Skyscrapers in Medium to long term. Which will have its own goods and bads. Please comments as to what do you think will be the landscape of Lahore Real Estate in 10 Years and don’t you think that to have a sustainable Real Estate some sort of governmental control with some increase in taxes is not a disaster but a surgery. Awaiting your response
With all due respect!
Such control will result only killing poor who cant afford such prices. Investor will not effect that much he will add his margin in the price after paying tax and sell to the end buyer.
As long as the concern of many new societies around Lahore, why this government spending whole Punjab budget on Lahore? ultimately ppl will attract to enjoy facilities of life. if every city have its basic necessities within the city i believe situation will be different.
https:// www. thenews. com.pk/magazine/money-matters/133858-Taxing-real-estate
COMING SOON….
The people cant afford own houses after these taxes, They are warmly welcome to FM’s house to live either in pakistan or Dubai if still some space required to accommodate Pakistani citizens, Raiwaind palace will be open for citizens of Pakistan. :p
On the contrary, affordability will improve as the flow of black money into the market slows down, leading to a price correction. It’s called economics and it works on the simple demand and supply principle.
Black money will never stopped in this way but white money will transfer again to off shore companies, as disclosed in Panama leaks, Ayan Ali, Surrey Palace, London flats etc…
What is the calculation of Tax if someone buying a property @ 5 Million (50 Lakhs) ?
How much Tax is applicable ?
None. Because at current prices, you can buy exactly nothing. So no tax liability :).
This is a badly needed correction of regulations. As someone who is in the top 1% of income tax payers in the country, but unable to purchase a 500 yard house for myself, I have been aghast at the amount of black money which has flowed into this market inflating prices for real homeowners. Not only is the price unaffordable but the so-called ‘investors’ are unwilling to do business with people with white incomes… demanding the real sale agreement be torn up after transfer of title, demanding that payment is made in pay orders of less than 1 million made out in different names. If you have a few crore of illicit money, what better avenue of hiding it than in an investment which on paper is worth just a fraction of the actual amount.
There are many honest taxpayers like me who are delighted at this initiative and hope that this will lead to some level of price correction as illicit, black money flows out of the market.
Personally, i would like the government to go one step further… take data of all the registries over the last 3 years and ask those people the source of funds.
Let’s clean out house once and for all for the good of the country, instead of mouthing empty hypocritical platitudes.
I AGREE WITH MR.ARIF
This is going to be tough for real estate business indeed and they are trying to kill this industry.
No where in the world have this concept what Govt have come up.
Sir, nowhere in the world does one buy property, declare its price to be a fraction of what it actually is and pay taxes on the ‘official value.’ let’s call a spade a spade… we’ve gotten used to this haraam ka paisa… don’t want to let it go very easily. Before making statements like ‘nowhere in the world,’ i suggest you do some research on what real estate laws are actually like in other parts of the world. It’s not so hard. Google it.
In canada, for instance, all trnasactions have to be routed through lawyers, and they can lose their license (plus penalties for both buyer and seller) if values are understated on the documents.
I fully support the government decision. I hope people will not politicize this matter. Eventually this would be in the interest of every law abiding person and would definitely discourage black money in the real estate. Please support the right things if you want the progress of your country.
The sharp increase in realest has created artificial inflation. The cost of doing business has become very expensive. This resulted in increase in prices of all the commodities. This has made poor people life miserable. Although I don’t like N government but I think their decision on real estate tax is correct. It should stay held.
It will badly effect the real estate sector.
Regards
Aslam Khan
Dear people,
These measures would collapse the entire property market of Pakistan and prices would certainly dip a lot. I believe a compromise without jeopardizing taxes on people with white money should be done. A decrease in the current taxes to 2% instead of 6% on the current market value would suffice in my opinion. To counter the high CGT of 10% for 5 years it should be 3 years and for the sale within the first year a tax of 10%, second year 5% and third a tax of 2.5% should be fine. For the transaction done in previous years amnesty for declaration of funds for purchases tax difference of the FMV in the year of purchase should be paid, for people with undeclared money legal action should be taken instead of giving any sort of amnesty.
regards,
Khawaja Umer Shehzad
03208484630
Investment Consultant at Imlaak
Hi guys.
The message is quite clear if observed closely and that is ‘invest in foreign countries’.
Enjoy.
with taxes taken back and an amnesty on offer, who do you think was the recipient of this message?
I think government officials have made enough money and now they will do something for the betterment of the people. Hope for the best
Sheep are to be slaughtered or eaten by wolves …..
As salam o alaikum ,
A new setup always take new changes so initially tough for all with time being it ‘ll be adjust between mutual understanding of customer and real agents as well
Thanks
Regards ,
Lioner Associates