Pakistan property market now and in the future
Pakistan real estate property sector is stagnant since the introduction of new property taxes in budget 2016-17. The government imposed heavy taxes on sale and purchase of properties. Even the introduction of property tax amnesty scheme has failed to uplift the stagnant property market. In the latest budget 2017-18, the government has once again increased the property taxes and FBR is soon going to increase the property valuation rates by 30%.
Higher taxes have both positive and negative effects on real estate sector. On positive side, higher taxes result in low property transactions. Low transactions mean low property prices, which are good for the genuine home buyers. On negative side, low transactions mean low sale & purchase of properties. Low property transactions decrease the income of real estate agents. Let’s discuss in detail the situation of Pakistan property market now and in the future.
Current situation of Pakistan property market
Currently Pakistan real estate sector is stagnant. There are three major reasons of this stagnation. Firstly, government has increased the property taxes (Capital Gain Tax on sale of property has been increased to 20% from 10% and holding time is 3 years but no discount on sale of property within 1, 2 or 3 years) and FBR is also going to increase the property valuation rates by 30%. Due to higher taxes, property transactions have decreased. Secondly, political turmoil in Pakistan has negative effect on real estate sector. Due to political turmoil, uncertainty increases and investors never invest in uncertain circumstances. This has also reduced the amount of capital investment in real estate sector. Thirdly, Pakistan is fast loosing foreign remittances due to economic meltdown and political instability in Middle Eastern Countries. Economies of Middle Eastern countries are melting down due to low oil price. Low foreign remittances mean less investment in real estate sector which will affect the overall volume of property transactions.
Future of Pakistan real estate sector
In order to know the future real estate trends in Pakistan, we should first know the property buyers and real estate investors in Pakistan. Who are the buyers of expensive properties, worth 2 crore or above? The simple answer is; businessmen, Pakistani expatriates and people with black money. Firstly, businesses are down due to bad economic condition in Pakistan. Secondly, Pakistani expatriates are losing buying power due to economic meltdown in Middle Ester countries. Thirdly, massive crack down by SC on black money is underway.
So what will happen when there are no buyers of luxury or expensive properties? Simple answer is that property prices will either fall sharply or will remain stagnant for 4-5 years. Pakistan has already witnessed the combination of both scenarios from 2005-2010, when property prices first crashed and then remained stagnant for years. So in short, we will see property price fall in future. The only question is the hard crash or soft crash. This property crash is what most Pakistanis want to happen, as it will bring down the property prices to much affordable level.