The stagnant property market does not look likely to recover anytime soon. Realtors and builders do not expect a housing rate slide in the middle-low income areas of urban centres, but they do foresee prices falling in posh areas where the market is driven by investors.

The volume of activity is next to zilch as investors are driven out while a mismatch of demand and supply keeps deals from materialising.

In the absence of credible data to show volume it is not possible to quote numbers, but market players projected a 30 per cent fall in the value of plots in high-end localities across all major cities since 2016. The dip is not as pronounced in the housing sector. In middle and low income residential areas rates are said to be almost static — at 2016 level — but the transaction level is low.

Talking to Dawn, frontline leaders of the real estate and housing sector assert that the right mix of forward looking, stable, policies can gradually improve the situation in the medium term.

They believe that visible progress at a reasonable pace on Naya Pakistan Housing Scheme can help revitalise the sluggish housing sector. However, abrupt sudden changes in the legal framework and the introduction of the wealth tax would further shrink the market and push businesses towards bankruptcy.

While the market is still grappling with tax reforms and waiting to see how the government implements the buyback scheme announced in the budget, the key operators dread the reintroduction of wealth tax in the country

The property market in Pakistan has grown vertically since 1990s, pushing unit price beyond the reach of ordinary people. The promise of quick- high- returns attracted both households and investors to the arena. Besides, the undocumented status made it an ideal destination to park unaccounted wealth.

Experts believe that over the past decade the persistent improvement in the law and order situation did help sustain the upward swing, particularly in Karachi, but the tax laws and regulations — especially the recent bar on non-filers to operate freely in the market — weigh heavy.

The impact of exemption promised for certain categories of buyers by the PTI government has yet to be assessed. These measures, though supportive, are not believed to be strong enough to re-energise the market.

While the market is still grappling with tax reforms and waiting to see how the government implements the buyback scheme announced in the budget, the key operators dread the reintroduction of wealth tax in the country.

When inquired about the status of any steps related to the property market, Arif Khan, finance secretary, told Dawn that the Federal Board of Revenue (FBR) has been tasked with preparing the implementation plan. “The spirit of the reforms is to improve documentation and plug loopholes in the framework that is being used to evade taxes.”

Dr Muhammad Iqbal, senior FBR official, told Dawn over phone that the measures announced may take more time before they are notified and implemented. He admitted that the process to establish a directorate or a holding company that will assess and acquire under-declared assets has yet to start. He mentioned lack of capacity and budget for the mammoth task. Dr Iqbal regretted that the provinces did not heed the federal government’s advice to do away with DC rates.

Proponents of documentations have long been demanding proper regularisation of the property business. Keeping opaqueness of the local property market in view, atleast one foreign bank has not been entertaining clients who wish to deposit funds from property sales proceeds into their accounts.

Besides multilateral donors, financial monitors such as the visiting team of the Asia Pacific Group last week, reportedly identified loopholes in the legislation in real estate brokerages where they observed large business transactions remained unrecorded.

To reform the property market the previous government, in its May 2018-19 budget, announced among other measures, the property buyback scheme to make value assessment realistic. It announced abolishing FBR rates, urged the provinces to shun the DC rates and barred non-filers from buying property exceeding a value of Rs4 million. At the federal level, a flat tax at the rate of one per cent was levied on the declared value of the asset.

Under the buyback scheme the government was authorised to buy individual properties within six months of registration for double the declared price in FY18-19, 75pc higher in 2019-20 and 50pc greater in 2020-21 and thereafter.

The current government maintained the non-filer bar with some exceptions. It revised up the permissible limit on the value of property that non-filers could buy from Rs4m to Rs5m, exempted widows, inheritors and overseas Pakistanis from the tax filer condition if funds to buy property flow in through banking channels.

Currently, market sources confirmed that sale volumes have crashed so low that viability of small and medium size companies has become difficult. If the situation is allowed to persist, companies will start failing and even relatively bigger companies will be forced to initiate a wide scale retrenchment to control losses.

What took the wind out of sails of the high flying property market that for the past three decades proved to be a risk-free, highly lucrative investment option in Pakistan?

Muhammad Hassan Bakshi, chairman, Association of Builders and Developers of Pakistan (ABAD), counted several missteps by the government responsible for market sluggishness.

“There has not been a single approval for any new project in the city over the past six months. The reason is the abrupt changes in rules and the requirement of attaining NOCs from utilities for registration. He said the Water Commission has declined to issue any NOC. One wonders how personal water needs are linked to the flat or shop that someone owns.

“The ban has blocked one trillion rupees and I know for a fact that scores of companies are moving towards bankruptcy. Not everyone invested from their pockets. Those who leveraged funds for suspended projects from the market are more vulnerable and in deep stress,” he argued.

Zeeshan Ali Khan, CEO zameen.com, at an event in Dubai reportedly said that the market has started emitting positive signs post elections. He did not explain the basis of this assessment.

He reportedly remarked “when tax reforms were introduced in 2016, sales of properties worth over Rs5m had slowed down because they fell under the tax net. But off-plan properties and those priced below Rs5m saw traction.

“There has been more movement in low-end properties. It was good for the sector because people were flipping properties, which has now stopped,” Mr Khan said. He made a case for a vibrant leasing sector to support the real estate market.

Published in Dawn, The Business and Finance Weekly, October 22nd, 2018