THE real estate sector — developed and undeveloped land for housing, commercial and industrial projects — has experienced an unmatched boom during the last one year on the back of unprecedented tax, monetary and regulatory incentives. The incentive package, which included a tax amnesty for investors for illegal money held by them, was announced in order to kick-start growth by encouraging the construction industry in the midst of the Covid outbreak and drive investments in low-cost housing to provide shelter to 5m low-middle-income households as promised by the PTI before the 2018 elections. In Pakistan, the real estate sector has always remained a preferred venue of investment not only for individual investors but also businesses because it is considered a safer option with a steady cash flow stream and higher returns. But it has also attracted illegal money because of negligible taxes and weak regulations. The PTI government’s tax amnesty scheme has only added to its attraction, with large funds diverted to land by local investors as well as overseas Pakistanis, who can now easily buy real estate remotely.

But the government’s decision to rely on real estate and construction for rapid growth has had unintended consequences for the economy and potential homeowners. It has driven up land prices — massively — across the country, put land out of the middle classes’ reach, and made real estate more appealing than industrial investments because of quicker, larger returns. Likewise, the brisk turnaround in the real estate and construction sector is considered an important factor in the surge in domestic inflation and import demand growth at the expense of the balance of payments. The recently revised property valuations notified by FBR for 40 cities in order to narrow the gap between the market prices of immovable property and the rates at which such transactions are taxed to generate additional revenues have somewhat dampened market sentiments. As immense pressure is exerted by the developers, builders and realtors on FBR to review its new valuations, the question is: will it be a wise move for the government to give in to their unjustified demand? With the government looking to increase one of the world’s lowest tax-to-GDP ratios for meeting its expenditure needs, it will not be advisable to forgo tax revenues from such transactions. The real estate players have received more than their due in the form of tax amnesties. Now is the time for the government to properly tax and regulate this sector.

Published in Dawn, December 29th, 2021