According to survey results, 8 per cent people said that investors have started investing in foreign property markets and 31% responded that they have no idea. According to the survey, 74% overseas Pakistanis shared that the number of overseas buyers dropped by more than 75% while 9% shared that the number of overseas buyers dropped by 50% to 75%.
The survey results revealed that 82% of the respondents said that the market situation has deteriorated after the implementation of the new tax regime and 13% claimed to have noticed no change in market activity. It said that real estate transactions were being registered previously at deputy commissioner (DC) rates. The revision of DC rates, which is the responsibility of the provincial governments, was hardly carried out in the areas of Sindh, Balochistan and KPK. In Punjab, however, the DC rates were revised from time to time but not in line with the market rates of property.
To address the issue, the federal government introduced amendments in the Income Tax Ordinance 2001 in the Federal Budget 2016-17. The government had introduced two types of property rates to calculate at provincial and federal levels. In this regard, the government revised DC rates for the calculation of provincial property taxes and introduced FBR valuations for the calculation of federal property taxes. In addition to this, the government also increased property tax percentages. All of this spurred confusion among local and overseas investors, who, amid all ambiguities, stopped investing in the property sector, leaving adverse effects on realtors' business.
About 16% property sellers said that number of sellers dropped by 75%; 24% said that number of sellers dropped by 25%-50%; 19% reported no change; 70% said that the number of the buyers dropped by more than 75%; and 23% said that the number of buyers dropped by 50%-75%.
The survey results clearly indicate that the state of affairs in the real estate sector of Pakistan have taken a turn for the worse. Amid stalled activity, property prices have dropped sharply after the implementation of the new tax mechanism. According to Zameen.com's statistics, property prices dipped in all major localities in three months immediately following the announcement of the new tax laws. In the same period last year (2015) by comparison, property prices in Lahore, Islamabad and Karachi registered positive trends in property values.
"For several months, the real estate market of Karachi has seen no investment activity. The limited activity seen in the market is due to genuine buying and selling. In response to this drop in real estate transaction volume, property rates in all major areas including DHA Karachi and DHA City Karachi have seen a major drop. Real estate agents operating solely in DHA's projects are currently very disappointed," said M Ali Syed of Heavens Deal Real Estate & Builders.
According to the Defence and Clifton Association of Real Estate Agents (DEFCLAREA) president, Sindh's property market alone has faced a loss of Rs 500 million since July 2016. "The real estate investment activity in Islamabad has dropped 50% ever since the new tax regime has been implemented. The drop in demand isn't specific to a certain locality, but the market has suffered on the whole," said Askari Inn Real Estate CEO Irfan Malik.
As the property market is at a standstill and there is no noteworthy investment activity, many real estate agents have shut down their businesses. According to an estimate, more than 500 agents have already closed down their offices and the number will most likely increase if the standstill prolongs.
"I believe that the imposition of these new taxes is completely unfair as property buyers and sellers have been paying taxes all this while. In fact, the real estate sector contributes heavily to the national exchequer. The tax amnesty scheme alone cannot help reverse the damage done to the property market," said DHA Estate Agents Association President Tariq Mahmood Bhatti.
This amnesty scheme will propel market activity for only a short period of time and may not provide long-term benefits to the property sector, as real estate investors will still be bound to pay a hefty amount of taxes in accordance with FBR's valuation tables.