Property market befuddled by tax measures after impressive growth
LAHORE: The realty markets of Pakistan remained stagnant in the first month of fiscal year 2016-17 after posting an impressive growth in the six months that preceded it.
The increase in property taxes, announced in the budget for 201617, was the source of unease in the real estate sector in Pakistan. But a bigger impact emerged from the Finance Bill 2016, which would alter the criteria to calculate the taxes.
Although the government would significantly retreat from the stance in the bill after extensive negotiations with the real estate stakeholders, its impact lingers. As a result, the property market registered a slow performance in terms of activity and prices in July.
As per the data compiled by Zameen.com, property prices in Lahore, Karachi and Islamabad remained steady for the most part in July, while declining in some cases. Defence Housing Authority(DHA) continues to be a good bet in the three cities.
Lahore’s real estate sector suffered in July, showing insipid numbers. In DHA Lahore’s Phase VII to IX, a one-kanal plot exhibited a price growth of 1.04 per cent. Other major localities, including DHA Lahore’s Phase I to VI, Bahria Town, Bahria Orchard, Wapda Town and LDA Avenue-I languished.
Only Bahria Town showed a controlled rise of 1.47 per cent in the 10-marla plot category. Bahria Orchard registered a price drop of 2 per cent while DHA Lahore’s Phase I to IX maintained stability during the month.
The real estate sector of the federal capital registered unimpressive numbers in July. While Gulberg Residencia showed some activity, with a growth of 1.94 per cent in prices of one-kanal plots and 1.15 per cent in prices of 10-marla plots, other prime locations registered stagnation or slight price drops.
DHA Islamabad was not exempt from the impact of the new proper- ty tax regime and registered unimpressive numbers. Even promising housing societies such as Sector B-17, Sector E-11, Sector F-11 and Bahria Town showed a lack of activity and price drops during the month.
Karachi’s property market had performed impressively during the first half of the year, but the tax-related confusion took its toll on the city during the month of July.
Activity was observed to be quite slow and DHA was the only project that saw a controlled rise in the value of 250 square-yard plots. All other localities clung onto stability, including Gulshan-e-Iqbal and Bahria Town Karachi. Moreover, in DHA, there was a 0.32% drop in the value of 500 square-yard plot category.
Following the announcement of the budget for 2016-17 and the Finance Bill, which proposed increased property taxes and altered criteria to calculate the taxes, sale and purchase activity across the country practically ceased. This alarming situation led to real estate stakeholders protesting against the new tax regime.
After negotiations, property valuation tables for the purpose of tax calculation were released by the Federal Board of Revenue (FBR). However, it seems that buyers are still confused about the situation and the unimpressive numbers attest to that.
“Even in Dubai, the transfer fee on property transactions was increased from 2 per cent to 4 per cent in 2014. Though it resulted in fewer transactions, the overall result was positive for the market because it discouraged property flipping,” said Zameen.com CEO Zeeshan Ali Khan.
“Similarly, in Pakistan, an increase in transfer costs will curb property flipping and the property valuation tables issued by the FBR will bring transparency and curtail money-laundering through real estate.”