Real Estate Sector Analysis in Pakistan

A country, much like a castle cannot stand proud atop pillars of sandy nothingness, as having a sturdy foundation is necessary for any form of progress. Naturally this is true for Pakistan as well, and it goes without saying that among all the pillars which form the foundation of this country, real estate may be the one that has undergone the most tests and trials of time. As can be seen through the real estate sector analysis in Pakistan.

The pillar of real estate has seen many weathers, there were many issues that came when supporting the foundation of our country’s economy. Real estate developments have slowed down since 2017 due to political turmoil and constant change in economic and financial policies. If we take a look at the developments of 2019, we see that the performance has been more dismal than the present. There were many financial, economic and political challenges that the countries faced even at that time, they slowed the progress of the real estate entirely.

The arrival of 2020, with the spreading global pandemic, made the road to success look even more difficult, but it ended up to be a good year for real estate after all. The government introduced a number of schemes that motivated the citizens towards investing in this sector. These new schemes and laws are what will be the cause of rapid progression in 2021.

But the real question that comes to mind is that where did the damage begin and what was done to make amendments? The real estate sector analysis will help us properly identify the damages first, either minute or colossal and the necessary repairs and improvements that followed along with the position of the investors, realtors, consumers, in it all.

The Discouragement of the Overseas Pakistanis

Overseas Pakistanis prefer to invest their hard-earned money in real estate,

  • With the purpose of having an abode to return to.
  • They want their options open, so an opportunity such as the real estate seems fitting.
  • Most of the first rate housing societies in major cities like Islamabad, Karachi and Lahore have already captured their interests by the provision of the splendid lifestyle they are accustomed to.

The year of 2019 did not invite many investments from abroad. The Overseas Pakistanis have known of the issues going on through the power of social media. The economic and financial issues that arose brought with them the loss in the property sector and the lack of interest of Overseas Pakistanis to invest.

Importance of the Investments by Overseas Pakistanis

The investments of Overseas Pakistanis are crucial for the growth of Pakistan as they fall in the category of remittance. The larger the remittance, the higher the value of Pakistani Rupees will be and then it can compete against the US Dollars.

Remittance inflows can contribute remarkably to a country’s economic well-being. A study conducted by Abdul Qayyum has shown that Pakistan’s remittance inflows help in not economic growth and also in improving social conditions. Districts like Sindh, Punjab and Baluchistan, have reaped the benefits of remittances to Pakistan.

And now the real estate sector analysis in Pakistan includes a big success, Pakistani Rupee traded at the highest value in nearly one year. In August 2020, the trading was at the lowest point, the rupee posted an improvement of 71 paisa’s on 3rd March 2020, closing at PKR 157.13 to the USD in the interbank currency market. This will attract our foreign investors and Overseas Pakistanis and keep them dedicated as their attention is ours.

With new policies and developments taking place, there is another benefit set in motion for the Overseas Pakistanis. For the expats, the income tax returns have been made flexible.

Untaught Property Dealers

The real estate market has been overtaken by uneducated agents and dealers who don’t have the know-how of the world of real-estate, so they misguide people and in most cases lead to cases of frauds. There is a need for a Federal and Provincial Real Estate Authority in the country that could help protect the rights of land allotters.

The development and construction of societies by the builders must be overseen, it takes many years to complete the land consolidation process. Taking the aid of some real estate regulatory authorities to oversee the developments will strengthen the confidence of people, especially overseas Pakistanis to invest their money in this sector without having any fear of scam.

This issue has an important place in the real estate sector analysis in Pakistan as it has affected progress in its own little way. Sometimes, it’s the tiny sparks of fire that are ignored, but it is capable of setting fire to the entire foundation. To prevent this, we at Sigma Properties are at your service. We shall provide you consultancy free of greed or any bad intention that is thinkable and shall point you to the right direction.

Previous Tax Rules versus the Present

The CGT or Capital Gains Tax is a tax that the seller pays and the capital gains refer to the profit that one makes from the sale of any property. Formerly, tax on capital gains or profit earned would be charged on the basis of how long one holds one’s property. For instance, if you buy a property and sell it within three years, Capital Gains Tax rates

  • For the first year would be 10% on the gain
  • For the second year would be 7.5% on the gain
  • For the third year would be 10% on the gain

If you chose to sell your property after three years, no further CGT would be applied. This system had a negative impact on the holding period, which is the time that an investor keeps the property for himself. The holding period had become really short and properties were bought merely for the purpose of resale.

All of this is gone. Now, the tax on capital gains will be applicable after 4 years of having kept the property with you. This new reform is in the best interest of the investors as the holding period has been made manageable for them and those who are buying property for the sake of setting it aside for years.

This has begun to strengthen the pillar of real estate in the nick of time.

The Absence of Relief Packages and Incentives

There is a dire need for incentives to keep the investors engaged with the real estate dilemma. In the previous years, there were no proper incentives offered to the interested parties, so lesser development took place.

Recently the government has provided new schemes and packages. The construction relief package is one of the main ones. The President of Pakistan has recently enacted the Tax Amendment Ordinance 2021 to facilitate the construction sector of the country.  It has been effective from January 1st, 2021. The deadline for availing the government’s special construction relief package from 31st December 2020 till 30th June 2021 has been extended due to this ordinance.

Now, builders and developers can easily get their projects registered under this tax amnesty scheme, which provides them immunity from disclosing their sources of income as well as availing the fixed tax regime. The deadline for the completion of projects is now 30th September 2022, instead of 30th September 2023.

This gives the real estate sector analysis an edge as the real estate investors can now enjoy the immunity to disclose their funding sources as well as the facility of fixed tax regime because of the extended deadline. It was 30th September 2022 and now it is till 31st March 2023.

The Tight Regulations of the FBR

The Federal Board of Revenue, FBR receives information about your income, the investments you have made and real estate transactions. FBR will match up your income with the filed tax returns and if there is a disparity, they will send you a notice or they will charge you a penalty fee. They might freeze your assets too.

In the past, FBR had targeted the non-filers, those citizens who do not file a tax return by the required date. There was an imposition of a ban on non-filers buying property worth more than 5 million unless they register with the Federal Revenue Board (FBR). Apart from this, FBR’s tight regulation on non-filers’ banking transactions, and the levying of high property transfer taxes discouraged investors from putting their money into the sector in 2018-19.

The FBR has lifted these bans now and the non-filers are availing this to invest large sums of money into the real estate sector. This is greatly contributing to the success of the real estate sector which is indirectly lifting the overall economic situation as well.

Conclusion

Being a developing county, Pakistan’s real estate is facing its battles. Not all of them are lost. The real estate sector analysis in Pakistan shows interesting movement and momentum. The Pakistani Rupees’ appreciation and the falling Dollar prices is a big achievement. It may not have been due to economic strength, but it is bringing in strength of a new kind. It puts Pakistan ahead of the game, in a supreme place where the world applauds it.

The new policies and packages introduced are lifting the real estate sector too because they contain benefits for the working class and the investors as well. All of this will result in more investments from abroad and within the nation. In 2021, the industry of real estate will exceed expectations, as the Pakistan Real Estate Forecast 2021 says so as well.