ppostnews: The year 2016 was forecasted to be an extremely promising one for Pakistan’s real estate industry, and with good reason.
In 2015, investment in residential property (apartments, houses and vacant plots) increased by five to seven percent, while in commercial property (including standalone shops, showrooms, retail and office space), there was an increase of 15 to 20% across Pakistan, despite the levy of Capital Gains Tax, Capital Value Tax and Stamp Duties in the Federal Budget 2014-2015. Industry experts were confident that investment would continue to increase in 2016 because of increased investor interest and consumer confidence in the property market, an improved security situation, as well as the Government’s enabling policies for the sector.
The Federal Budget 2015-16 brought much needed tax relief to the sector. The minimum tax builders were required to pay for the construction and sale of residential buildings was suspended; bricks and crushed stone (crucial building materials) were given a sales tax exemption until June 30, 2018, and Customs Duty on the import of construction machinery was reduced to 10% (source: Federal Board of Revenue (FBR), 2016).
By all projections, Pakistan’s real estate market – on the back of increased Foreign Direct Investment (FDI), CPEC infrastructure projects (Read our story CPEC’s real estate opportunity on page 16) and a robust demand for housing – was expected to reach new heights in 2016.
However, this positive outlook took a turn for the worse with the announcement of the Federal Budget 2016-17 in June, 2016. Property taxes were increased and the outdated District Commissioner (DC) rates for property valuation were replaced by the FBR determined market values for documentation and taxation purposes (Read our story Taxing real estate in Pakistan on page 12).
The increased taxes, changes in the property valuation mechanism and consumer demographics have many implications for the industry. However, to understand them fully, it is essential to step back and understand the complex dynamics of this Industry.