In the approaching fiscal budget, realtors and investors of the real estate sector are predicting a serious curb in property investment on the reports of improvement in Capital Value Tax (CVT). With the reports overheating up on the imposition of Capital Gain Tax (CGT) on trading of stock market, there is also news regarding the enhancement of CVT on real estate in the next budget.Leading property dealers and investors are expressing their fears regarding the aftermath of this tax enhancement. .
They are of the view this would divert investment to other countries or the investors will divert their money to other sectors.
Chief Operating Officer PakRealEstate, Ovais Suhail observed that Dubai market is still very attractive and safe haven for real estate investors as it offers better returns in short-term. More than 50 local builders have established their business in Dubai, Ajman and Sharjah and are earning handsome profits while others are eager to enter in these lucrative markets.
He said As far as mega projects of foreign companies have attracted a significant number of overseas and local investors but they do not drive the market.He said the enhancement of CVT could wipe out the speculation for uncertain period as number of investors will shy away to pour their money on the plots of various societies, and added that number of genuine buyers is approximately 20 percent while the rest are investors in this sector.
Mr Suhail said that property investors had expressed some reservations over the investment in Real Estate Investment Trust (RIETs) as not a single company has turned up in the market, and it will take some time to attract investment in it.Co-Chairman Standing Committee on housing and Construction, Munir Sultan, said the government should rationalise its policies on housing and construction.
He said that cost of construction is skyrocketing amid non-availability of raw material in the country. In this regard, he added, “government should provide incentives to developers and builders, as the UAE government is doing, rather than shifting tax burden on the builders.”
In fiscal budget 2005-06, two percent CVT was imposed on the transaction of the property that restrained the spiral in property prices and proved to be a strong barrier for speculators. However, with the passage of time, realtors as well as investors have adapted to the new system and devised strategies to avoid such taxes.Some players said that they would set new trends in the real estate market if the taxes would be enhanced and would derive new strategies to run the market in a smooth and positive direction.
A Gulistan-e-Johar’s realtor said that there are various techniques to avoid taxes and many of the investors are currently using them.Currently, he added, taxes are imposed on the transaction of big plots and homes, therefore investors opt to invest on small land.Sources in the tax department told that economic managers are considering introducing a new tax system which not only will enhance government’s revenue but also discourage speculation in this sector.
However, the present tax system is still not effective to enhance tax base in this sector and receive the taxes from transacted properties.The IFC data-base on cost of doing business that is maintained for more than 175 countries, points out that in terms of ease of registering property, Pakistan was ranked 68th (higher ranks are better) in 2006, down from 57 in 2005, and in terms of ease of enforcing contracts Pakistan was ranked 163rd in both 2005 and 2006.
Official sources said that most of the rules regulating real estate and construction markets are would be revised to check corrupt practices and promote local and foreign investment.“The policy makers have proposed drastic measures to ensure transparency in the real estate and construction markets,” they added.
