Millions of families in Pakistan have always depended on income generated from the real estate sector. Being the second largest sector after agriculture, Pakistani real estate has made a lot of people big fortunes & provided the country with some of the wealthiest individuals. The sector, however, was never without risks. Unclear direction of governments, lack of regulation, heavy taxes & bad policies made a lot of people suffer while many others were minting coins. In order to succeed in real estate, it is said that one does not only needs to be on the right side of government policies but also must possess the necessary information on how the system works.
These issues with real estate sector have always created an air of uncertainty among domestic investors as well as overseas Pakistanis. Think of an overseas Pakistani looking to invest his hard earned money in real estate. You would need ample information on every option in the pool to make an informed decision or risk losing your life’s savings. These things call for standardized regulations, simplicity of processes to follow & ease of transaction.
To deal with these issues, last government tried to introduce some measures such as reduction in taxes & simplification of buying/selling process. Results, however, were not as gainful as expected & a substantial shift in market was not seen. In 2016, major developments were seen when the government introduced an amnesty scheme allowing people to invest their unregistered wealth into construction sector for a small fee & no questions asked. According to this scheme, the investors were able to legalize their wealth by paying a 3% tax on the difference between price declared by FBR & the DC rate. Real estate sector observed a growth in market following this decision.
Since coming into power in 2018, the PTI government has struggled greatly with economic growth & overall activity. It became imperative for the ruling party to introduce measures in order to stimulate economic growth. In May 2020, government changed the status of the construction sector to that of the industry while providing certain incentives to investors. Under this regimen, withholding tax would be waived off, sales tax be reduced in coordination with provincial governments, a Rs. 30 billion subsidy would be given for Naya Pakistan Housing & Development Authority via commercial & micro-finance banks, 10% of the fixed tax rate for people constructing houses under Naya Pakistan Scheme to be implemented & investors would not be questioned about their source of income. Sales tax was reduced in coordination with provinces. The policy also allowed for people selling their family homes to not pay any taxes on any capital gains realized. This scheme was extended in January 2021 per government announcement.
Opportunities created by these initiatives attracted a lot of money hidden in vaults. Businessmen & households alike poured in more than Rs. 250 billion. Over 2.5 lac new jobs were reportedly created as the construction sector saw a boom. Demand for residential & commercial land suddenly skyrocketed with prices reaching an all-time high. Vast portions of land in & around the suburbs of many cities, previously deemed useless, turned into hot cake with an ever increasing number of new housing societies being applied for & approved.
All of this, however, is not without issues of its own. While the policy brought in plenty of opportunities for people, here’s a catch: either you need to have money to invest or you have to be associated with real estate & construction sectors in one way or another in order to reap the benefits. Additionally, there still exists a gap in regulation & standardization in real estate sector wherein many new housing societies attracting investment are simply not approved by their relevant local authorities. A large number of people, unaware of the regulations pertinent to real estate, may think of things in simple transaction terms of buying & selling goods. People have faced all sorts of issues in this regard with some investing their money in unapproved schemes & others losing their savings completely.
As for the federal government, while the real estate boom has eased a lot of pressure with new investments & employment opportunities, the situation has posed some unique challenges. With the boom in construction, demand for cement & other building material has skyrocketed leaving nothing for export depriving the government of valuable foreign exchange. On the other hand, a lot of building machinery is being imported depleting forex reserves. Policymakers in Islamabad are certainly aware of the situation & probably working on ways to deal with this situation.
While the growth in real estate & construction sector is not a complete answer to challenges the government is facing, it sure is a breeze of fresh air for many. A lot of work still needs to be done. Regulatory measures need to be expanded with standardized procedures across the board. While it is the investor’s responsibility to assess the viability & legal status of the real estate they intend to invest in, it is government’s job to ensure that all the relevant departments continue to provide easy & consumer friendly procedures. Approval processes need to be without any undue hassle & time wastage. Every possible help must be extended to those who unknowingly invested their hard earned savings in unapproved schemes & now trying to get their lives’ work back.