What does 2017-18 budget mean for real estate?

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On May 26, Finance Minister Ishaq Dar revealed the last budget that is to be rolled out under the current regime. In the last couple of months, there has been a lot of speculation in terms of what the incoming budget will mean for the real estate and property sector. Here are all the highlights:

Costs of construction

While the fixed taxes that were levied on builders and developers in the last budget have been done away with, the cost of both cement and steel will be going up. The Federal Excise Duty (FED) on cement has risen to PKR 1.25 from PKR 1 per kilogram. The tax on steel has also jumped from 9% to 10.5%. This effectively means that costs will now directly rise for people looking to build their homes or property. It remains to be seen whether the retraction of the taxes on builders and developers will have an impact on costs.

Sharing the risk

The current budget has looked into the issue of low income housing. The government will be providing a 40% credit guarantee for home financing. Around PKR 6 billion has been allocated so that banks and development finance institutions (DFIs) can be covered. One home maybe insured for up to PKR 10,00,000.

Capital gains

The three-tier system of the capital gains tax (CGT) tax has been done away with under the current budget. However, the CGT has been increased to 15% for filers and 20% for non-filers.

Something for the expats

Under the new budget, ex-patriates get a special mention. Calling them an asset for the country, Dar announced that the government wants the Pakistani diaspora to “invest in the infrastructure development of the country.” The move comes in a bid to shift focus away from the real estate sector, which has been the focal point for many overseas Pakistanis that are looking to invest back home. The government’s plan to issue a bond specifically for these Pakistanis is telling.

However, it is important to note that while the government does not want the diaspora to divert away from real estate entirely. According to Dar’s speech, the Capital Development Authority (CDA) will soon also announce an exclusive sector for Pakistanis living abroad.

Wait for it

Within its Budget in Brief document (which you can read here), the tax collection systems in place are mentioned in terms of the need to reduce leaks. In the coming time, what we are looking at is the provincial governments’ response to these leaks. The document tells all provinces to step up their game and effectively tax both the real estate and agricultural sector. The same point reappears in the explanatory memorandum that has accompanied the budget.

The current budget has remained interestingly detached from giving out too much detail on what’s to become of the real estate puzzle. However, the steps that provinces take on their own to tackle the sector remain to be seen.

 

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On May 30, 2017
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