The real estate market in Pakistan has also been heavily impacted by recent economic challenges, including the high cost of construction and the eroding purchasing power of buyers, which affected the demand in the mid to high-end property segments and slowed down market activities in major cities, according to a research report developed by House Building Finance Company Limited (HBFC).
Historically, currency devaluation, with the Pakistani Rupee depreciating against major currencies, has made real estate an increasingly attractive option for overseas Pakistanis and foreign investors, potentially driving up prices in specific segments. However, this year rupee remains largely unchanged against other currencies which also impacted real estate prices.
Moreover, the State Bank of Pakistan’s policy rate increase to 22 percent in 2023 amid higher inflation has made mortgages more expensive, potentially slowing down market activity. Economic uncertainty has also contributed to cautious investor sentiment, with many adopting a ‘wait-and-see’ approach before making significant investments. Pakistan’s real estate market stands at a crossroads, with recent tax reforms poised to significantly reshape the sector.
While challenges exist, particularly in terms of short-term market adjustments and economic headwinds, there are also substantial opportunities. New Taxation on Property The 2024-25 fiscal budget represents a major shift in Pakistan’s real estate taxation framework aimed at increasing revenue, curbing market speculation, and promoting transparency.
Key changes include the elimination of the holding period concept for properties acquired on or after July 1, 2024. A flat 15 percent capital gains tax (CGT) now applies to ATL (Active Taxpayers List) filers, while non-ATL filers face higher progressive rates.
For properties sold within a year, a 15 percent CGT is imposed, with lower rates for longer holding periods depending on property type. Rental income tax has also been standardized across all taxpayer categories, with calculations based on net income after allowable deductions.
Additional reforms include a 50 percent reduction in stamp duty for affordable housing transactions and property tax exemptions, with full exemption for units valued up to Rs. 2.5 million and a 50 percent reduction for properties valued between PKR 2.5-5 million.
Withholding tax has been adjusted, reducing it from 2 percent to 1 percent for properties held over three years, and eliminating it for those held more than 10 years.
To encourage sustainable building practices, the budget offers up to a 10 percent tax rebate for green projects meeting LEED certification standards and developer tax credits up to 15 percent of project costs for affordable housing developments. Real Estate Investment Trusts (REITs) benefit from tax-exempt dividend income and a reduced corporate tax rate of 15 percent. Additionally, land transfer tax has been reduced by 25 percent for properties transferred among family members.
These reforms aim to stimulate growth in the real estate sector, encourage long-term investment, and support sustainable development. However, the full impact of these changes on market dynamics remains to be seen. Tax Mechanism Pakistan’s property tax rates range from 0.15 percent to 0.75 percent of property value, overall.
These tax heads include The Capital Value Tax (CVT), which stands at 2 percent on property value for filers.
The capital gains tax on property has been set at 15 percent for filers and 45 percent for non-filers. Pakistan’s stamp duty on property transactions ranges from 2 percent to 5 percent of property value or circle rate. The registration fee for property transactions, ranges from 0.25 percent to 1 percent of property value depending on the province.
This additional cost on property transactions could put Pakistan at a competitive disadvantage in attracting real estate investment. The CVT, combined with other property-related taxes and fees, increases the overall expense of property dealings in Pakistan.
This distinctive tax burden may make Pakistan’s real estate market less attractive compared to neighboring countries, potentially impacting its position in the regional property investment market. Pakistan’s property taxation system presents a mixed picture compared to its regional counterparts. While it offers competitive property tax rates, its capital gains tax structure is less favorable, especially for non-filers.
Stamp duty and registration fees are generally mid-range, but the unique Capital Value Tax adds an extra burden. Overall, Pakistan’s multi-layered property taxation may reduce its attractiveness for real estate investment compared to some neighboring countries, despite having advantages in certain individual tax categories.
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The more it discourage the investors the more it will be favourable. But only if fbr exempt buyers who buying property for the first time or after 5 years. It was the real estate parasites who take the 1 million plot to 10 million only for the sake of their commission and left the deserving buyer with no option other than living on rental property. Property values should be down so that it match the people buying power.