FOR far too long, the country’s property market has served as a major avenue for many to park and launder their illegal money in, as well as avoid payment of taxes. Successive governments have kept away from regulating and reforming the market in the past, primarily out of fear of stiff resistance from, and loss of political support of, what many now term as the ‘property mafia’. The previous government’s tentative attempts towards the end of its term to close the massive gap between the official valuation rate and the actual market value of a property for the purpose of regulating the sector fell flat. The government twice postponed the hike because of opposition from the beneficiaries of the status quo in this sector ahead of the 2018 general elections in the country. Luckily, the incumbent administration has shown a stronger determination on the issue as reflected in the second upward revision of property valuation rates in an attempt to bring them closer to the actual market prices in 20 major cities across Pakistan in less than six months.

The fresh increase in property valuation rates, which are now estimated to be around 80pc to 85pc of the market price, will help the government collect significantly higher tax revenues and deepen the documentation of the economy. Coupled with some other initiatives announced in the budget for the present fiscal year, such as the increase in the holding period of a property for recovering tax on capital gain, the alignment of official valuation rates with market prices is expected to generate additional tax revenues of Rs40bn. These measures are also expected to discourage speculative investment in immovable property, divert capital into productive sectors, plug the loopholes used for whitening illegal money, and slow down the rapid increase in property prices. In certain areas of different cities, as realtors have pointed out, the new property valuation rates are higher than the actual, fair market prices. If so, it is incumbent upon the FBR to carry out a detailed survey of the property markets in different cities to assess the actual market prices and revise upwards or down the rates to remove the discrepancies. Such surveys, in fact, should be organised on an annual basis to collect the relevant data and prevent the gap between property valuation rates and the actual market rates from escalating.

Published in Dawn, July 26th, 2019