The property market is still reeling after the Finance Bill 2016 sent shockwaves through the sector. In July, the real estate market recorded a downturn in activity and price performance, but things look better in August.
The cost to transfer properties is set to increase by up to 200 percent as a consequence of the new property evaluation method.
Buyers have suffered a drop in confidence. Presently, a buyer needs to pay six percent in taxes for a property transfer if the property is worth Rs3 million; which comprises a one percent corporation tax, two percent capital value tax (CVT), and a three percent stamp duty, not forgetting the registration fee of Rs1200.
“Sellers have been hit badly in the past few months,” said Saad Arshed, managing director of Lamudi Pakistan. “We have observed a slight reduction in online search queries as a result of the new tax rates.”
If your property costs more than Rs 3 million you can also expect to pay a withholding tax of four percent up from two percent and the government has imposed a capital gains tax on sellers.
“The third quarter is over, and we are now seeing the effects of the property tax amendment in full light. Buyers are hiding in the background, waiting for the market to bottom out, there is a lot of uncertainty, and there is a reduced number of transactions.” Arshed added.
A significant percentage of the real estate market in Pakistan was black money. Formerly, the property market was the perfect haven for holding black money, but the FBR now requires verification for the source of income and black money investors have been put off.
Adil Bhatti, a real estate agent from Islamabad with expertise in DHA market tells us “There is a transactional freeze in the market that is expected to linger for an uncertain period while property prices observe a relatively stable trend in DHA, Islamabad.”
Is the freefall coming to an end?
Data for August reveals that prices in the major housing schemes have leveled out. While Pakistani taxpayers are now required to pay a lot more tax, it has brought transparency to the market as most buyers are now genuine which makes the market less volatile in the long run.
The real estate sector is changing, it is no longer a casino but a long term investment hotspot. High return on investment opportunities are available for purchases held for 3-5 years. Naturally, renting out houses is a sound investment vehicle with five percent rental yield per year. We may now be waving goodbye to the era of overnight price fluctuations.
Mistake: “required a pay a lot more tax”
Should be: “required to pay a lot more tax”
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Lol, they should actually proofread it before publishing it!
Yep!
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But you’ve to admit that there was a huge mafia involved with black money. Also prices of plots were being increased by internal trading between dealers too.
A plot which otherwise would cost around 50 lacs was costing around 75 lacs. The burden of this real-estate gambling was paid by end user who was probably working hard day and night for a home for his kids. No?
Well as long as people are willing to think of plots as temporary investment instead of actually using it for housing, the current situation is inevitable
This writer does not know anything about taxes and properties