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Property market revisions

January 13, 2018

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WHEN the government announced in 2016 that rackets involving the misdeclaration of values in property transactions would be ended, there were howls of protest from the stakeholders. For the longest time, property prices flattened out, and in some cases shrank, as a mechanism was put in place to generate valuation tables for each locality in urban areas across the country. Adding to the tumult, the government had also committed to increasing the prices listed in the valuation tables each year, in the hope that ultimately these rates could either match or come close to those at which property transactions are conducted. The exercise was an attempt to tackle the giant black hole that the real estate sector has become, sucking in the largest quantities of black money in the country from every other sector. All manner of illicit and tax-evaded wealth can easily be parked in real estate assets, evidence of which was provided by the June 2016 amnesty scheme for real estate investments that generated the largest response of any amnesty scheme ever when an amount of Rs290bn was declared under it in only three months.

In July came the first signal that the government’s resolve could be losing steam, when the upward revision was indefinitely postponed. Now there is the news that the FBR issued six regulatory orders on Friday setting down the localities that would be allowed a downward revision in their listed prices. How were these localities chosen, and how was the downward revision in their recognised prices calculated? Here is where consultation with stakeholders needs to be avoided, and if property dealers are themselves involved in selecting the areas for downward revision as well as the quantum of this revision, then it is tantamount to government collusion in tax evasion and the concealment of ill-gotten gains.

The days to come will afford us an opportunity to see where exactly these revisions have been applied, and a clue might be discerned as to whether or not the orders are designed to serve a limited set of vested interests. As that process of scrutiny gets under way, the government should release an explanation as to why this step was necessary, and explain the process by which the decision was made to identify the localities and set the quantum of the revision. Where the state is concerned, there is undoubtedly a revenue loss involved in this exercise, but beyond that, the harm done to the overall objective of documenting the economy and closing off the dark spaces where all manner of wealth is hidden away should not be underestimated. The downward revisions fly in the face of the earlier commitment announced by the government to increase the documented price of property transactions. The reversal of that commitment needs to be examined.

Published in Dawn, January 13th, 2018