New property tax system is blessing for genuine buyers
Pakistan new Property Tax evaluation system 2016
In Pakistan, taxes on real estate transactions are applied according to DC rates which are much lower than the original market prices of properties. The government of Pakistan has changed this procedure in 2016. According to the new procedure starting 1st July 2016, property taxes will be collected not according to the DC rates but according to the current values of properties. For this State Bank of Pakistan has issued the list of regional real estate price evaluation members, who will evaluate the current prices of real estate in different areas / regions.
Major reasons of the government’s decision to change property tax evaluation system in Pakistan
People should invest in job creating businesses
Firstly, real estate investment is not a genuine investment as it adds no real value to the economy, but rather restricts genuine businesses from working by making it significantly more expensive to lease business spaces. People should be encouraged to invest in more job creating businesses as it will lead to economic growth in Pakistan.
Free circulation of black money will be checked
Secondly, real estate sector is mainly a tool for hoarding black money and averting capital gain and wealth taxes, with the lucrative return. FBR and government wants to stop black money circulation in Pakistan. By new property tax evaluation system in Pakistan, black money circulation will be much controlled.
House prices will become more affordable
Thirdly, the normal / affordable real estate prices will be a blessing for genuine home buyers & businessmen, other than the fake investors who hoard up land / property and are major cause of sky high property prices in Pakistan. The new property tax evaluation system will be a great tool by the government to bring house price to much affordable level, which will solve the housing crisis in Pakistan.
It will end land price compensation disputes in Pakistan
Fourthly, during the construction of Orange Line Metro Train Lahore, people held huge protests to demand market rates for their land and properties affected by train route. Eventually, the government paid the affected people according to market rates. To end the disputes forever in Pakistan, the government wants to receive taxes and to pay compensations according to the market rates.
Effects of New property tax evaluation system on real estate sector
There are both positive and negative effects on real estate sector due to recent changes in property tax evaluation system:-
Negative effects of new property tax evaluation system
On negative side, real estate sector will see massive decline due to reduced transactions. According to one real estate expert of DHA Lahore, file transfer has declined in DHA since July 1, 2016. Before new evaluation system, on average 100 files were transferred in DHA Lahore on daily basis. Day trading will be affected by new tax formula and realtors / real estate agents will see massive declines in their businesses.
Positive effects of new property tax evaluation system
On positive side, speculation will end in real estate sector which is the major cause of abnormally high property prices in Pakistan. We will see 50% price crash in many areas, especially where empty plots are in abundance. This will ultimately bring the house price in Pakistan to much affordable level. The people who want to buy properties for living, will find plots and houses at much affordable rates.
Genuine home buyers are the real beneficiaries of new tax evaluation system
As discusses above, new evaluation system will reduce the day trading and speculation in real estate sector. Investors will get their money out of the property market and we will see reduced and much affordable prices. This will benefit the genuine home buyers, especially the first time buyers. High home price is the major cause of homelessness and declining home ownership in Pakistan. New evaluation system will provide the most desired relief for genuine home buyers and home ownership will increase in Pakistan.