The PTI government has presented its first ever budget on 12th of June 2019. There were many taxes which have been increased in this budget but on the other hand, there are few sectors who got relief in the latest budget. There are a number of opinions about the new budget. Some people believe this budget as the need of moment while some are criticizing it by calling it unrealistic and destructive. Despite mixed opinions, we can evidently say that this budget is a serious shock for the real estate sector of Pakistan and property tax.
Apparently, this budget favors genuine buyers in comparison to seller and investors. We all know the fact that the huge amount of black money is parked in the real estate sector, therefore, the government decided to collect more and more taxes from the real estate industry.
Today, we are going to discuss how the recent budget 2019-20 will impact the Real Estate sector of Pakistan.
THE PROPERTY TAX AMENDMENTS
The Pakistan Tax amendments announced in the recent budget are as follows:
From now onwards, Non-filers are allowed to purchase property even if it worth PKR 5 million or more but the following rules will be applied.
- Non-Filer is bound to file returns within the range of 45 days. The time range will begin with the day of property purchasing.
- If the Non-filer buyer of the property failed to file the return within the specified range, an automated assessment will be established to inquire about the source of income.
- Moreover, the non-filer will be entitled to pay five percent of the property amount as a penalty. The percentage will be applied as per FBR rates.
PROPERTY WORTH 5 MILLION OR MORE:
- The purchaser of the property worth PKR 5 million or more is entitled to disclose the source of income.
- For buying a property worth 5 million or more, the transaction must take place through Banks.
CG TAX FOR PLOTS (CGT):
There will be a capital gain tax for the empty plots. The ruling of this tax is as follows:
- If the plot is sold within a year after purchase, 100% profit will be taxed.
- If the plot is sold within 10 years after purchase, 75% profit will be taxed.
- If the plot is sold after 10 years of purchase, the profit will not be taxed.
CG TAX FOR CONSTRUCTED PROPERTY (CGT):
There will be a capital gain tax for the constructed property. The ruling of this tax is as follows:
- If the constructed property is sold within a year after purchase, 100% profit will be taxed.
- If the constructed property is sold within 5 years after purchase, 75% profit will be taxed.
- If the constructed property is sold after 5 years of purchase, the profit will not be taxed.
HOW TO CALCULATE CAPITAL GAIN TAX (CGT):
The capital gain/profit will be considered as income and will be treated accordingly under the rules of normal income tax.
WITHHOLDING TAX (WHT):
- The WHT will be collected according to FBR property valuation rate. However, for filers, the WTH has been decreased from 2% to 1%.
- According to previous policy, there were no WHT on purchase of property worth less than 4 million. But now the WHT will be collected on all transactions regardless of the property worth.
- According to previous policy, there were no WHT if the property was sold three years after purchase. From now onwards, the WHT will be collected up to 5 years. And if the property is sold after 5 years of buying there will be no WHT.
IMPROVEMENTS IN FBR PROPERTY VALUATION RATES:
The government is keen to ensure that the FBR property valuation rates will increase up to 80% market value.
HOW THIS BUDGET WILL IMPACT DIFFERENT ROLES OF PAKISTAN REAL ESTATE MARKET:
Real estate brokers or Estate Agents are completely frustrated by the amendments in the property taxes in the latest budget 2019-20. The dealers were high on hopes about getting relief in the budget. They needed a reduction in FBR Rate and permission to purchase property for non-filers. Recently, numerous dealers disclosed that they haven’t paid leases and are deciding to leave the real estate sector.
So, we’re expecting many real estate businesses to be shut down in the near future.
In Pakistan, the real estate industry is widely believed to be not only a safe destination for black money but also for its quick and healthy returns against investments. But after the recent budget, the real estate sector will lose the investors’ interest as now they have to wait for a long time to avoid the taxes on their profit. This development has made the real estate sector very less attractive for investors.
Sellers are also struggling at the moment. Essentially, the sellers are concerned about the following three factors
- It’s hard for them to find a filer buyer.
- They have to wait many years to avoid high taxes
- As the recent developments have reduced the investors’ interest in the market, it will be difficult for sellers to get a good offer against their property.
The genuine buyers with legal money are the real beneficiary of this budget for the following reasons.
- They will pay fewer taxes on the purchase of immovable property.
- More supply and less demand in the market means the buyer will have a lot of options to opt for the best one.
- Genuine Buyers can purchase property on nominal rates as the new tax amendments will surely reduce the property prices.
FUTURE PRICE TRENDS:
The real estate prices in Pakistan was booming till 2016. After that, the prices saw a consistent recession. Currently, the property prices are almost 35-40% less than what they were during the peak in 2016. The latest tax developments in the budget 2019-20 will further reduce the investment in the real estate sector. Therefore, we expect that the property prices will keep on falling. From this point, there is a prediction of a further 35-40% decrease in the prices. This situation is somehow similar to Dubai, where the prices (after the market got crashed) are currently 75% down from what they were during the peak of 2008.
INVESTMENT AREA FOR KARACHI:
- DHA City Karachi (Check Out the Compare of DHA City Peak and Current Prices)
- Gulshan e Maymar (Check Out the Latest Prices of Gulshan-e-Maymar)
- Bahria Town Karachi
- Taiser Town
- Scheme 33