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Thursday March 28, 2024

Real estate businesses struggle on SBP’s new valuation rules

By Jawwad Rizvi
July 13, 2016

LAHORE: The real estate and property market has slowed down since the State Bank of Pakistan (SBP) designated valuers to tax on the market rate base instead of the deputy commissioner (DC) rate, dealers said on Tuesday.

According to the real estate agents of Lahore, Karachi and Islamabad, transfers of plots have almost stopped since the new fiscal year started.

Sarmad Jan, a real estate dealer from Lahore who deals with property in DHA, said that not a single plot was transferred on Monday, July 10, 2016, when businesses resumed after Eid holidays. While on Tuesday, only a few deals were done on submission of affidavits to pay extra taxes on the basis of the evaluation done by the designated SBP valuers.

On average, 70 to 100 transfer deals are completed in DHA Lahore on a daily basis, Sarmad said, adding the loss of the business could be estimated with the very few deals made in two days.

“The investors are uncertain about the fate and also unaware how much they have to pay in tune of duties and taxes when they purchase a property on the evaluation carried out on the market rates compared to the DC rate. Everyone knows the amount of the duties and taxes will be paid by them,” he said.

On Tuesday, the real estate welfare association of Lahore also protested in DHA Lahore at Lalik Jan Chowk. They demanded the government to reverse the taxation on property to the previous method of DC rate. They said the government, rather than converting the evaluation method of the property for tax collection, increased the DC rate, so everyone knows about the amount of taxes and duties to be paid on a particular property purchase.

They also claimed the new method of evaluation would cause capital flight from Pakistan to the Dubai real estate market, where no huge taxes were applicable. They believed that once the capital flew from Pakistan, it would not return which would also negatively affect the economy and might lead to a glut in the real estate sector of Pakistan.

Haider Abbas, a Karachi-based real estate dealer of property in DHA, and Bahria Town, said uncertainty in the market began soon after the Budget when Finance Minister Ishaq Dar announced changing the taxation on real estate from DC rate to market rate. Sudden surge was recorded in the transfer of plots during Ramazan, as those who were long term investors quickly made the decision to buy their properties before the implementation of the new regulations. However, after Eid business had halted, and both real estate dealers and investors were waiting for clarification on it. “We are expecting reversal of the regulations to the previous method of DC rate evaluation,” he said.

As per new regulations, a property has to pay 10 percent of the evaluated price of the property on market rate which increases the taxes almost two to three times from the existing DC rate method.

In Lahore, properties are being transferred on the DC rate of Rs2 to Rs8 million, while the market values of these properties are in the range of Rs12 to Rs30 million.

Hence, on DC rate evaluation method, the duties and taxes paid by the buyer was around Rs150,000, to Rs1.2 million, while after market rate evaluation method it would increase to Rs1 million to Rs3 million.

The SBP through its circular ERD/M&PRD/PR/01/2016-67, on July 4, 2016 had nominated the SBP 59 companies as Panel of Valuers for evaluation of the properties. The SBP circular stated that as per Finance Act, 2016/17, an amendment in section 68 (4) requires determination of fair market value through approved panel of SBP. Accordingly, the SBP has issued its Panel of Valuers.

The panel would remain effective till the Securities and Exchange Commission of Pakistan (SECP) issued its regulatory regime for valuers and necessary amendment in law.

The SBP also called for fresh applications for placement of valuers on the SBP approved panel which could be submitted to director, BPRD, SBP on the prescribed format.