IN an exercise to ascertain the amount of money pouring into Islamabad’s real estate sector, the Federal Board of Revenue has discovered the astonishingly high figure of approximately Rs100bn over three years, at DC rates. This is the official declared rate at which property transactions are disclosed, and as most people already know, the real amount is far higher. It is difficult to put a figure on what the real amount could be, but it is not unrealistic to estimate that it would be as much as four times the declared number. This is only for those property transactions done under the Capital Development Authority. The amount is staggering, and what is even more startling is the fact that almost half the investors involved in the transactions do not even possess a National Tax Number.

All this may sound astonishing, but few are actually surprised. The real estate sector has long been known as a major parking lot for black money, and successive attempts to try and raise the DC rates or increase the rate of capital value tax applicable on property transactions have been met with fierce resistance. The last amnesty scheme which offered yet another ‘one-time’ opportunity to whiten assets parked in real estate yielded more than Rs300bn, perhaps more than all other amnesty schemes combined. Real estate is the black hole in Pakistan’s economy, sucking in investible resources while yielding up nothing by way of assets that can either be collateralised, or otherwise play a useful role in the economy.

It is vital to find a way to plug this gaping hole in the heart of our economy. It has damaging effects in multiple ways. For one, it provides the single largest area of investment for tax-evaded and illicit wealth. For another, it necessitates the creation of massive money-laundering schemes to periodically whiten the money that goes into real estate, should it choose to leave the sector. Thirdly, it attaches an undue premium to speculation as the main driver for reinvestment of profits, as opposed to trade or manufacturing. This has damaging consequences for the ways in which our urban landscape is shaped and stymies the key problem of land supply and housing shortage for the poor. If tax-evaded wealth engaged in real estate speculation is to drive property market prices, then the losers would necessarily be the poor and the public interest would be pushed further to the margins of the housing market. The FBR authorities have done the right thing in undertaking the exercise with the CDA — and following up with all those who have invested outlandish amounts in property while not even possessing an NTN is crucial. In time, the exercise should be broadened and conducted in the larger cities of the country such as Karachi where the big predators roam.

Published in Dawn, February 27th, 2018