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New property tax system is blessing for genuine buyers

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.

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(29) Comments

  1. Dr. Salman

    on   said 

    I wish this could happen , prices go down so that I can buy a plot for me. I am a PhD professor in govt university and 15 years have passed me while doing job but I can never buy a 5 marla plot because of exorbitant prices.

    Reply
    • Dr. Salman
      This is true but very harsh reality of Pakistan real estate sector.
      In shaa ALLAH prices are coming down everywhere and prices are already 10-20% down. Just see the prices in December.
      Majority of professionals in Pakistan and salaried people cannot buy own homes.
      Hope the things get calm down this time.

      Reply
  2. Shahid Iqbal

    on   said 

    I know many oversease Pakistanis who are dishearted to invest in real state ,they are now thinking to to hold their savings until some alternative investment which suites them, govt must have given relieve to oversease pakistanis

    Reply
  3. Shahid Iqbal

    on   said 

    Oversease Pakistan have no choice other than to invest for short time in property. After this new tax system of high taxes of short time investment and giving no relieve to oversease workers, there will be huge drop in transection

    Reply
    • Shahid Iqbal
      True
      Sort term investments are being stopped by New property valuation system
      According to many real estate experts
      transactions have already reduced
      This is a big below for short term investors and real estate agents

      Reply
  4. Rizwan

    on   said 

    Hi ,
    Lovely article , it has given me hope at least , i hope your prediction is right and property price is going to drop however i heard big real estate mafia is planning to challenge these taxes in courts.
    I been trying to buy a house for last 5 years and always fell short because of ridiculous pricing of plots and houses.
    So in your opinion the right time to buy a house will be end of 2016?

    Regards

    Rizwan

    Reply
    • Rizwan
      August is the month of protests
      September is the month of Eid – BAKRA
      October is the month of Muharaam
      We will see normal real estate activities in November
      Picture (White & Black) will be clear in December.

      Its always better to wait.

      Reply
  5. Umair Iqbal

    on   said 

    HI all ,
    i am really happy with this move from federal government , so the question is how much price drop should we expect in big city like Karachi and in how much
    duration ?

    Reply
  6. Naveed

    on   said 

    this is a v.good step to overcome housing issue in pakistan by govt. I need advice that I am a salaried person with 15k monthly saving, please suggest me any project or housing scheme to invest in karachi. I am in dire need of 3 room home.

    Reply
  7. Rashid

    on   said 

    First real estate business in pakistan is a big mafia …we have to see how they deal with this tax..personally I do believe govt will surrender in front of this powerful mafia …second cost of construction material is too high .
    Affordable housing will remain a dream unless Government reduces construction material cost …
    If people construct more houses there will be more demand for construction material and workers which is good .I fail to understand how this tax will bring down housing prices as this is controlled by some big mafia in pakistan not by government.

    Reply
    • Rashid
      Thanks for great insight
      There is indeed real estate mafia in Pakistan like every other country, but what matters most is the influx of black money in real estate sector.
      Government in in need to tax real estate sector as it will generate billions of dollars for revenue. People who think tax amnesty will solve the problem are living in fools paradise. This amnesty will only benefit large real estate groups but small realtors living on day trading will hit hard. Government will tax real estate sector what ever realtors plan to do.

      How market will crash?
      Crash is already underway. On average in DHA Lahore, 80-100 files were transferred on daily basis, which has come down to 5-10. DHA Lahore has 11 phase and how many phases are fully occupied. Capital flight from real estate sector is already underway as we can see stagnant real estate activities but very high stock market gains. So people are just withdrawing money from real estate sector and are investing in Pakistan Stock Exchange.

      Affordable housing?
      Supply and demand is the greatest factor. If we build more houses prices will crash simple is that. Pakistan need 1 million new houses every year but we are building 2-3 lac houses annually. So government initiatives to start house building on massive scale will definitely reduce the abnormally high prices.

      Should one invest in real estate sector?
      Real estate sector is sharply declining since 1 July 2016. Prices are declining even realtors don’t agree. Prices will keep declining for 1-2 years. Then we will see stagnant real estate market. Prices will rise again but not before 2020.

      Housing schemes or developments on installments are best options at the moment
      In the current situation, real estate projects on installments are best option as you don’t pay immediately but in installments. Due to devaluation of money, you pay less but your property worth more after the completion of installments. Projects on installments are the best option at the moment if some one want to invest in real estate sector.

      Reply
  8. yasir

    on   said 

    please advice, that after new tax system, is it right to invest In asf housing , where plot of 125 is of 15 lac?

    Reply
    • Yasir
      ASF Housing Scheme and all developments with installments are secure as you pay in installments rather than immediately
      Properties in DHA and Bahria will see biggest drop in prices as both societies are more than 50% empty countrywide but prices are sky high

      Reply
  9. saba

    on   said 

    i wish that prices go down that salaried person can afford home.. there are so many people in Pakistan who could only dream of their own houses..i wish

    Reply
    • Saba
      Even top professionals like doctors, engineers, accountants and other top professional are facing housing problems due to highly inflated house prices in Karachi, Lahore, Islamabad and other cities. House price crash is need of the hour for the real buyers as it will make housing affordable for masses in Pakistan.
      This is the last chance for Pakistanis to avoid coming RENT SLAVERY as house affordability will decrease due to high property prices.

      Reply
  10. Umer Ehsan

    on   said 

    Very Well and Briefly explained.
    the job holder comunity in pakistan are paying taxes on the go while those big whales in real estate are hiding their assets by investing in real estate market and also making it much more difficult for a genuine buyer to afford a house or plot.
    and finally i would have to agree with ur reasoning about job creating business, i personally think that its the best step by federal government to get a hold onto those real estate giants.
    Thanks

    Reply
    • Umer Ehsan
      Who are protesting new taxes? Just realtors
      Who will benefit from new taxes = real buyers
      Why we make laws that serve very few people. Why-not we provide relief to masses by bringing house price down.

      Reply

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