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Impact of black money on real estate sector

Impact of black money on real estate sector
Black money

Black money is one that is earned from irregular or illegal means. But according to the government, money that is received in cash through underground economic activities, and is not taxes, is the black money.

Black money in Pakistan

According to the government officials, black money in Pakistan is approximately 20-25% of the real economy. This huge amount of economy is untaxed and is the shadow economy. According to Senator Haroon Akhtar Khan, Special Assistant to Prime Minster on Revenue, such large amount of money cannot be allowed to remain unchecked and untaxed. According to him, government will do everything to eliminate black money in Pakistan.

Why black money in reality sector?

Black money and real estate sector has long history of love affair. In Pakistan and many other countries, real estate sector was one of the best sources to whiten the black money. But since 1 July 2016, FBR is asking the source of income and this has flushed out black money from Pakistan real estate sector.

Reality sector with influx of black money

Property prices are dictated by the purchasing power of buyers. When people have more buying power prices does increase and vice versa. But when black money enters the reality sectors, it massively increase the property prices and in most cases way out of the affordability of genuine buyers. Transactions and earnings of realtors shrink due to expensive and unaffordable property prices.

Reality sector without black money

Black money curbing has always positive impact on property markets. Firstly, without black money, property prices fall. Secondly, it makes properties affordable for masses. Thirdly, real estate transactions increase as people start buying properties. Fourthly, realtors get good business due to increase in real estate transactions.

Impact of curbing black money in India

India has recently started curbing black money. They have banned old 500 and 2000 Indian Rupee Bills. This has effectively controlled the black money circulation in India. But for reality sector this exercise has proved as death blow. Property prices in India are crashing like meteorites. Property prices in India had been popped up by black money. But now without black money, property prices in India are heading for 50% crash.

Impact of curbing black money in Pakistan

Impact since 1 July 2016

Pakistan is way ahead of India to curb the black money. India has negative impact on its economy due to demonetization policy, but Pakistan has controlled black money and our economy is booming as evident from STOCKS. Pakistani government knows that 7 trillion PKR has been illegally parked in reality sector. The government just empowered FBR to ask the source of income. This has effectively curbed the influx of black money in reality sector.

Impact after announcing amnesty scheme

After protest of realtors and real estate stake holders, government has recently proposed amnesty scheme for real estate sector. Amnesty scheme is for transactions before 1 July 2016, as many people were caught off guard. This amnesty scheme will not increase property prices as new transactions will be scrutinized by FBR to curb black money. So without black money, prices are falling and will keep falling to the point where people with white money can afford to buy. This is another intelligent move by Pakistani government to cool down realtors and to collect more revenue.

Recommended:
Taxes to be paid by property buyer and seller

(23) Comments

      • rizwan

        on   said 

        MEANS GENUINE BUYERS GOODBYEEEE………… PRICES OF PROPERTY ARE GOING TO SKY ROCKET NOW….PROPERTY MAFIA CANNOT BE CONTROLLED………EVEN IF ONE PERSON BUYES A PROPERTY AFTER 10 YEARS EVEN THEN HE CAN TURN HIS BLACK MONEY INTO WHITE AS THIS IS NOW A LAW AND FOREVER AMNESTY GIVEN TO BUYER OF PROPERTY…. GENUINE BUYERS AB ROAD PAR AGAYA HAI APNI APNI QABAR KHOODLOO

        Reply
  1. rizwan

    on   said 

    ghar47 have u watched 30 nov kamran khan show on dunya news???

    they said that amnesty has been approved by national assembly and has been made law and there is no time limit and any one can go n buy a house and turn his money white by paying 3% and this can be done forever as there is no time limit….

    plz tell the details of what is happening????

    Reply
  2. YOUSUF LODHI

    on   said 

    we must wait for full, final details of amnesty scheme duly approved by relevant authority to be imposed by FBR….and then…..we will be able to clearly figure out the merits and de-merits of this scheme

    Reply
    • Rizwan
      According to DAWN news today
      It has cleared that amnesty scheme will be offered for only for transactions before 1 July 2016.

      Another interesting point is that if one cannot provide the source of income
      FBR / GOVERNMENT WILL CHARGE UPTO 35% TAX ON DIFFERENCE OF FBR RATES AND OLD DC RATES

      So, where are prices and property sector to go?
      DOWNWARD

      This scheme will help only old transactions
      New transactions after 1 July 2016 have to show source of income

      Who will buy large / expensive properties with white money?

      This is why market has not reacted happily and no increase in transactions

      Prices are falling and will keep falling for long time until

      WAGES ARE HIGH TO AFFORD PROPERTIES
      PROPERTY PRICES ARE LOW AND ARE AFFORDABLE

      Reply
      • rizwan

        on   said 

        GHAR47 IF FOR EXAMPLE I SOLD A HOUSE IN JUNE 2016 SO WILL I ALSO BE ELIGIBLE FOR THE AMNESTY ??OR WILL IT ONLY BE OFFERED TO THOSE WHO BOUGHT A HOUSE BEFORE JULY AND ARE CURRENTLY HOLDING THE PROPERTY??

        Reply
  3. Shazia

    on   said 

    Pakistan property market is in stagnation and this is on purpose by government
    1. Government will skim property sector by more taxes
    2. What government will achieve by low prices. Simple best solution of everyday confusion and fight. In next budget government will say that property price are down to fbr rates. So government will make law in budget 2017 to collect all property taxes according to market value of property.
    3. Election year and government will boast that by low prices that have given stunning relief.
    4. Government will collect huge taxes via amnesty scheme

    Reply
  4. Jawad ali khan

    on   said 

    I am estae agent in islamabad
    Market is dead
    Nno sale and purchase
    People think that amnesty scheme will start property activites agian
    Sorry but they arei
    In dream land
    Investors have left the market ages ago
    Now investors are afraid of fbr letters asking the source of income
    Even buyers with white money are afraid
    Real estae confidence is record low
    I never saw investor so dishearted
    Its will take year to build mlmentum again
    After property crashed in 2006 it took 7 yeras to start solid recovery in 2013
    There is big probem
    Pakistan property was goden hen for pakistan expatriates
    But know even they cannot buy property in pakistan as property prices are even out of their reach
    Either price fall or stagnation will happen
    Until prices are within range no solid recovery

    Reply
    • Jawad Ali Khan
      Many thanks for reporting current situation of market from Islamabad / Rawalpindi
      Last night some agent called me from Islamabad. He told me that he has earned just 9 Lac in last 6 months but his office / home expensive were 30 Lac for last 6 months. According to him his agency is 17 years old and what he has earned is just from property sector. According to him he has never seen such a situation. According to him 10,s of sure deals have been cancelled. Sellers have even reduced the prices but no sale and purchase.

      Reply
  5. Saima

    on   said 

    Great blog ghar47 about black money
    Dont know what is in store for proprty sector but at the moment property prices are down from june 2016 peak
    Its look like that if same stagnation witj downward movement of prices remain for few months property market will crash to record low in pak
    Its look like that news of amnesty scheme couldnot uplift the falling real estae market

    Reply
    • Saima
      Time is changing
      We as a nation are moving forward for better future
      Things cannot remain same forever
      Change is everywhere
      Black money is blocked
      So without black money in property sector we can see the results, price fall / stagnation
      1000’s of investors and realtors have left the market

      Pakistan reality sector will not remain same forever
      But with white money people have limited options
      So market will adjust itself in few months like 2-3

      One thing is for sure, it will take years to recover the property price level seen before 1 July 2016

      Dubai property market has not even fully recovered the prices of 2008
      After 8 years property prices in DUBAI are 20% down.

      Investors always dislike uncertainty as investors always want healthy gain.
      Investors are not willing to invest so even after massive inflation of 8 years in Dubai property prices are 20% down from 2008 level.

      Situation in Pakistan is not different either.
      Pakistan property market will recover with time. It can be months / years.

      TIME IS THE BEST MEDICINE

      Reply

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