2021 and the Real Estate Industry of Pakistan

The real estate market is the backbone of any economy. To boost the economy, a country should concentrate on its real estate industry. As the population of the world has been increasing with every passing day, there will be a need arising for owning a house or land. There are five main categories of real estate: residential, commercial, raw land, industrial, and land for special use. An investor may invest in any of these categories to earn a profitable return.     

Past Real Estate Trends in Pakistan

According to the World Bank calculations, the country’s real estate asset should consist of 60-70 percent of the country’s total wealth. If we apply this estimate to Pakistan, the approximate size of the real estate industry will be $300 to $400 billion. The real estate market has slowed since 2017 due to several economic, financial, and political instabilities. There were many factors that contributed to the downturn in real estate which includes the ban on non-filers buying property worth more than 5 million unless they register with the Federal Board of Revenue (FBR), absence of incentives to the investors, and inability to use the development budget that contracted the building and real estate sector.   

CPEC is another huge development project that not only boosts the real estate industry but also the economy of Pakistan.  The special monetary zones of the CPEC are yet to be done, but the positive results of the CPEC can be found concerning an improved condition in the power region and deficient realization of the Lahore-Karachi motorway.

The Real Estate Market and Budget 2020-2021

As we know, Pakistan is the fifth most populated country in the world with a population of approx. 220 million. Real estate is the major growth industry in Pakistan, and Pakistan spends about $5.2 billion on construction and growth of real estate projects. Despite the improvement, we have seen that many people in Pakistan still lacking the facility of owning a house. The real estate industry is unable to reach its maximum capacity due to several regulations imposed by FBR and other regulatory authorities. Currently, there is no tax on the property owned for more than four years. However, if a property worth is Rs 5 million there will be a 5 percent tax on the property, and the property sold within 10 years of ownership 15% taxed will be levied on it. The imposition of high taxes on already tax-paying citizens has eroded the confidence of investors.

The government claimed that the 2020-2021 budget is an economic booster. The silent features of the budget are:

·         Extravagance Property Tax is presented on Villas and Farmhouses. Because of huge houses, the expense will be gathered from PKR 1 Lac to PKR 2 Lac for every year. In any case, for farmhouses, extravagance local charge will be gathered from PKR 25 for each square foot to PKR 80 for every square foot.

·         FBR will assess the undaunted property rate to carry its standard with the market rate.

·         The period for Withholding Tax (WHT) at a bargain of the undaunted property has been decreased from 5 years to 4 years. So no WHT if a property is sold following 4 years of procurement.

·         The capital increase charge (CGT) period has likewise been diminished from 5 years to 4 years. No CGT if a property is sold following 4 years of procurement.

Therefore, the introduction of a luxury tax on villas and farmhouses was a good step because it will discourage the construction of large houses. Luxury houses will not only create revenue for the government but also save valuable land for other uses.

Reforms in the Housing Industry of Pakistan

Imran Khan, since turning into Pakistan's PM has made a few changes and upgrades to Pakistan's Real Estate Industry that is straightforwardly identified with Pakistan's economy from numerous points of view, for example,

·         To raise the government tax revenues several changes have been implemented

·         Speculation is prevented in the real estate industry

·         Because of these changes, the investment in the real estate industry declined which directly affects the economy of Pakistan.

Construction Sector Amnesty Plan

 In December 2020, Prime Minister Imran Khan gave the New Year gift to the people associated with the construction sector by extending the fixed tax regime until December 2021. The prime minister gave an extension to construction projects, which were supposed to be completed in 2022. Now they can be completed by 2023. Therefore, this extension in a fixed tax regime will definitely help the investors of the real estate industry in 2021.