Until December last, all was well in Akbar Seth’s property business. Then his business fell under the spell of jinx. He says the property sector is not likely to back to normalcy until the next government is installed after elections and the transition smooth and elections are not that much controversial. The recent months have seen market plunging downward by about 15 per cent and activity level is low. Akbar is a small fry in the sector and even realtors apprehend the market will dip vertically by up to 50 percent if the National Assembly approves the proposed budget without correcting the clauses that hurt the real estate. This is, however, very much unlikely.
The fiscal budget 2018-19 presented in the last week of April is under discussion in Parliament. The lackluster discussion brings no hope for the stakeholders, which have been hot hard by the economic measures by the former finance minister, Miftah Ismail. The budget announced several measures to regulate Pakistan’s booming real estate sector which is often called a safe haven for parking ill-gotten money and has been rescuing centre for the people with black money to hide and invest their ill-gotten money, side by side increasing the informal economy by pushing legal capital into a grey area.
For these reasons, the real estate is booming. The proposed changes in the budget have panicked the investors and kick-started a reverse spiral. The people at loss, real loss, are the genuine clients and investors. To this end, the government has proposed abolishing the Federal Board of Revenue’s (FBR) rates on property, requested provinces to end DC rates and barred non-filers from buying property exceeding a value of Rs4 million. At the federal level, the advance tax has been cut to one per cent of the declared value.
Reforms in the real estate sector have been a longstanding demand by tax experts. As Daman Shah from the Gery and Ferguson called property related measures ‘awesome and long overdue’, it is a defining moment too for the economy. These corrective measures in the key sector will bring about a pleasant change
If one passes by a road, only undertaken housing schemes are seen. One wonders why no signboards announcing the establishment of a new industrial unit are missing. The property market in Pakistan has grown over the past three decades as every next person wants to invest in land, resulting in housing out of the reach of salaried and middle-class couples. Then there is a ruling from the Supreme Court on the Bahria Town that also shook up the market. But that is a great positive, corrective measure. Many operators fear a significant market overhaul as land prices will come down leaving the investors in jittery.
The government intends to make the property business under tax net and under the formal economy. Those who matter in real estate and construction businesses say that the government’s measures and the recent court decisions may be counterproductive to getting property dealings back in the fold of the formal economy. This happens as the gap between the market and declared value of the property is problematic as it is a critical factor for potential foreign investment in the sector.
Former finance minister Miftah Ismail sees expatriates who plan to invest in property in Pakistan should file tax returns in Pakistan so that they come under tax net too. “However, we need to make the procedure easy for them. It would benefit them immensely as it will also save them an extra cost on bank transactions”.
The fact is that real estate market in Pakistan has become the most secure and easy investment destination for the past three decades. The beyond one’s imagination returns, that too overnight, with low or zero tax and valuation absorb a major chunk of investable capital seeking quick returns.
Well done, the government for taking the right step.