LAHORE: Prices of major housing societies are now decreasing faster than they did before amid increasing investors’ concerns over the future of the real estate market.
The government, through an amendment in the income tax ordinance, moved to increase the rate of capital gains tax for properties sold before two years. Its aim was to increase tax collection from the real estate sector that has long gone without contributing much to the national kitty. It went about achieving the aim by redefining property valuations, which were being traded in multiples of the old notified rates.
Two months, and several protests, later, the real estate market is feeling more of a pinch.
Prices came down in July and August – after the budget measure was announced – but since investors do not see an end in sight, panic among them is increasing.
Lahore’s real estate market challenges new tax rules
Market experts say that both local and overseas investors are not reluctant to pay taxes, but their concern revolves around statements coming from the country’s top tax collecting authority, the Federal Board of Revenue (FBR), that call for a probe in to the source of money from individuals working in this sector.
“People in Pakistan are not in a habit of showing the source of their wealth, and in case of realty markets the practice is even more intense,” Sheikh Ghafoor, Chief Executive Officer of Pak Properties, told The Express Tribune. “No one here wants to be a part of the tax net since there is a fear that the FBR will use its traditional tactics to harass investors even if they are investing with white money.”
The number of property transactions has witnessed a sharp decline since July in three major cities and very few investors are transferring properties. As per market analysts, the number of transactions in Defence Housing Authority of Lahore, Karachi and Islamabad has declined by around 70%.
A major chunk of investments in DHA have come from overseas Pakistanis and there is a greater concern among the overseas community. The inflow of overseas investments, as per market estimates, is currently at its lowest level in decades.
“Market is in chaos, and very few transactions are taking place. It will not normalise any time soon, even if the issue is resolved,” said Raja Mazhar, President Defence and Clifton Association of Real Estate Agents. “We are fully supporting the stance of Lahore realtors to collect taxes on provincial rates instead of FBR evaluations,” he added.
Property taxes: FBR assures builders they will be brought on board
The realty market, considered an informal sector in Pakistan without much regulation from government agencies, has traditionally offered healthy returns. Inflows of black money, minimum tax liabilities and a huge demand-supply gap have caused the sector to post impressive growth.
All that has now changed.
The government has not only increase the rates of CGT on sale of properties before two years, but drawn a clearer distinction between income tax filers and non-filers. Property valuations have also been revised to deduct federal taxes.
“New taxation has now started affecting small and medium size agents, offices are now closing,” said Mian Bilal Hanif, CEO Estate Heights. “The FBR needs to alter its strategy and adopt a gradual process to bring the sector under the tax net.”
Courtesy : Express Tribune