AMNESTY SCHEME for real estate sector
Property transactions have almost stalled in all major cities of Pakistan and property prices are already down by 20-35%. Many real estate agents have closed their agencies due to approximately zero income. Recently, real estate agents and reality sector stakeholders held protests in Karachi, Lahore and Islamabad. After these protests, government and property stakeholders have another round of negotiations.
Finally government has signaled the tax amnesty scheme for real estate sector
The National Assembly’s Standing Committee on Finance and Revenue has approved an amnesty scheme for the real estate sector. According to this scheme people have to pay 3% tax to whiten black black money / hidden assets. Here are the main points of amnesty scheme:
Amnesty scheme is to whiten the black money in property sector
This will be one time amnesty scheme for real estate sector
Amnesty scheme will be offered for limited time period
Property purchased before 1 July 2016 can be sold at fixed 3% tax
FBR will not ask the source of income if someone has paid 3% tax
A committee to be made which will work out with provincial governments to evaluate property rates where FBR Rates are higher than market rates
Why this amnesty scheme is offered?
Amnesty scheme for property sector is offered firstly to bring undocumented economy to tax net. Secondly, it will flush out black money from reality sector. Thirdly real estate sector will be vibrant once again after long stagnation. Finally realtors will get businesses as property transactions are bread & butter of agents.
Effects of amnesty scheme
Property prices will keep falling
Pakistan has already entered in the era of buyer’s market. Buyers market is one where properties are more and buyers are less. In a buyers market, property prices fall. Due to limited time period to whiten the black money and stagnation in reality sector, hundred thousands properties will be for sale. It will be very hard to find the buyer for these properties. This will result in more price fall.
Property amnesty scheme is a blessing in disguise for genuine buyers
There will be many hundred thousands properties in market for sale as investors will try to exit the stagnant property sector. Its very hard that these properties will get buyers. So genuine buyers will be able to buy properties at record low prices as desperate sellers will reduce the prices to exit the reality sector where only hope is that prices will keep falling.
Volume of transactions will increase
The immediate effect of amnesty scheme will be the increase in real estate transactions as sale and purchase will resume again. Earlier, property transactions were 80% down from pre-budget level. We will see massive rise in real estate transactions very soon.
Real estate agents will see increase in their incomes
Many realtors have closed their agencies due to zero transactions & revenues. But things will improve now. Due to high transactions, real estate agents will see increase in their income. Hope this rise in income will compensate the earlier losses.
Pakistan Real estate sector future trends
High-end / expensive properties are doomed
Who can afford luxury / expensive properties with white money? This scheme will definitely give relief for people who bought / sold properties before 1 July 2016. But FBR is and will ask source of income for all transactions made after 1 July 2016. Expensive properties were the market of black money in Pakistan. Without black money, prices of high end properties will fall sharply as after 1 July 2016.
Stable property market
Pakistan real estate sector will be subjected to more taxes in future as FBR will increase rates on annual basis. Due to all these developments, speculation will decrease. The future property transactions will be based on the real need of people to find some place for living. The best property investment will be the buy to let or rental income. There will be no overnight profits but good returns on 3-5 years investments. At last we will see stability in Pakistan reality market.