What Has Imran Khan’s Government Planned For Pakistan’s Property Market?

Imran KhanWorld Economic Forum [CC BY-SA 2.0], via Wikimedia Commons

After much deliberations and amid controversy (mainly surrounding the sacking of finance minister Asad Umar), the Pakistani government has introduced its first tax amnesty scheme – Asset Declaration Scheme 2019 – for documenting undeclared public assets and expenditures.

As per a recent Reuters report, the Adviser to the Prime Minister on Finance, Dr Abdul Hafeez Shaikh, who replaced Umar following his unceremonious departure, said that the “basic purpose of the scheme is not to generate revenue but to document the economy”.

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On May 15, just a day after the official announcement, the Pakistan Tehreek-e-Insaf (PTI) government enacted the scheme through a presidential ordinance; which would effectively allow the citizens to declare their undocumented assets (including offshore properties), expenditures, and sales at nominal tax rates till June 30, 2019.

The Federal Board of Revenue (FBR), which is the top federal institution that oversees taxation matters in Pakistan, recently notified the rules for the said amnesty scheme in a four-page document—Assets Declaration (Procedure and Conditions) Rules 2019. These rules comprise four main articles: manner of filing declaration; conditions for making declaration; payment of tax for original demand and payment of tax under other laws, and revision of declaration.

Preventing black money from floating into real estate

Under the amnesty provision, for declaration of domestic real estate, the value of immovable property will be calculated at 150% of the FBR-assigned value — in a bid to bring its value at par with market rates. In response, the authorities concerned will document such a property at a tax rate of 1.5% of the property’s calculated actual value.

Similarly, in the absence of government-assigned rates (FBR value), the value of immovable property will be calculated at 150% of the DC value (rates determined by the deputy commissioners to calculate provincial taxes). Moreover, the amnesty scheme allows its beneficiaries to increase (to a certain extent) the declared value of their immovable property.

For documentation of foreign assets, the fair market value will be determined at the exchange rate prevalent on the date of declaration. In addition to the aforementioned provision, citizens will be allowed to regularise their benami (without a name) accounts and properties before the Benami Transaction (Prohibition) Act, 2017 comes into force.

While the government anticipates major benefits – including the addition of billions of rupees to the national exchequer – through its latest initiative that aims to “bring dead assets into the economy and make them functional”, it has yet to come up with legislations that could effectively harness the country’s wealth stashed in Swiss banks and other international tax havens.

Lifting the ban on non-filers?

Prior to his departure in April, Umar, who now heads a parliamentary panel on finance, had announced his plans to lift a ban on non-filers that would allow them to sell and buy properties valued above PKR 5 million — with effect from July 1 this year.

The restriction dates back to last year, when the then Pakistan Muslim League-Nawaz (PML-N)-led federal government had introduced stringent measures for non-filers as part of its budget for the (fiscal year) FY2018-19. As part of his budget speech, finance minister Miftah Ismail announced that the government had raised the limit of purchasable property for non-filers from the proposed PKR4 million figure to PKR 5 million.

Two major changes pertaining to the real estate sector were also in the pipelines: the abolition of both DC and FBR rates, and the introduction of policies that would empower the government to buy land at double their declared price within six months of its sale.

With regard to the annulment of FBR and DC value rates, the incumbent government has, on the contrary, announced to bring the DC rates equivalent to market value from July 1 onwards. Shabbar Zaidi, the newly-appointed chairman of the revenue board, informed a press briefing that the DC rate is applicable all across the country — except for 22 notified cities where FBR rates apply.

However, the provision that would ensure the government’s pre-emptive right to buy any property at a fixed rate was recently enforced with the establishment of a Directorate General of Immovable Properties (DGIP), which, as its name implies, is responsible for dealing with matters pertaining to real estate and immovable properties.

Vision for future settlements

Perhaps the most challenging task that lies ahead for the nascent government has to do with the provision of five million low-cost houses and apartments in a country where at least 24.3% of the 220-million strong population lives below the national poverty line (as per international statistical surveys).

According to the World Bank, the country’s population is expected to reach between 270 and 300 million people by 2050. Furthermore, the international agency has projected Pakistan’s housing needs to increase considerably. Today, Pakistan faces a housing backlog of 8.5 million units—40% of which is in the urban areas.

Although Prime Minister Imran Khan has launched the ambitious housing project in Islamabad and Quetta, the data retrieved through the field research efforts undertaken by Prop.pk (a newly emerged online real estate portals vying for the domain’s top spot) suggests that the government has yet to commence with the construction work on houses and apartments in Punjab — the country’s most populace province.

The Pakistani premier, in his speeches and during the course of numerous official meetings, has stressed on the need to develop high-rise buildings in order to protect the country’s arable land from being swallowed up by housing societies, as well as to check the mushroom growth of cities.

With the government’s resources choked by a crippled economy and the uncertainty that comes in the wake of an IMF-administered bailout package, Khan is hopeful of replicating the successes he had once achieved as one of the most accomplished captains in Pakistan’s cricketing history.

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About the Author

Ankur Shah
Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com

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