LAHORE - The new property evaluation method based on actual market rate will increase the cost of properties transfer by at least 100 to 200 percent.

The property dealers said the business of property sale and purchase has nosedived since the announcement of this new system and imposition of fresh taxes on real estate sector as there is more than 80 to 200 percent difference between the actual property rates and DC rates.

“Now the buyer has to pay almost Rs300,000 for registration of a plot of five marla in a lower middle class locality in Lahore suburbs against earlier rates of Rs150,000 under DC rates,” Nasir, a property agent, said.

Presently, the buyer has to pay a total of six percent in taxes for the transfer of a property worth Rs3 million including one percent corporation tax, two percent CVT and three percent stamp duty, besides registration fee of Rs1200. For the property costing more than Rs3 million, an extra withholding tax of two percent was also payable on transfer of property. Now this withholding tax has been increased to 4 percent while minimum limit for WHT has also been enhanced from Rs 3million to Rs4 million. The government, in fresh budget of 2016-17, has also imposed a capital gains tax of one percent on sellers.

Anas Ahmed, another property dealer, who deals in real estate business in Samanabad and Gulshan-e-Ravi areas, said that previously the duties and taxes paid by the buyer of three marla to one kanal plots in normal localities was around Rs150,000 to Rs1 million under DC rate evaluation method, that had been increased to Rs0.3 million to Rs2 million under the new market rate evaluation system.

A stamp seller Haji Afzal was of the view that as per new regulations, a property buyer has to pay around 10 percent of the evaluated price of plot under new market rate, increasing the cost by 100 to 200 percent against the existing DC rate system.

He said that usually in Lahore, if properties are transferred on DC rate of Rs3 million, their market values will be in the range of Rs6 to 10 million depending on localities.

Afzal said that according to the new ordinance, the rate of CGT will be 10 percent on a property held for one year, 7.5 percent on a property held between one and two years, and 5 percent if the holding period is between two and three years. If a property is held for more than three years, it will be exempted from CGT, he added.

He said the government has also increased the basic threshold for application of withholding tax on purchase of immovable property from Rs3 million to Rs4 million under new evaluation system while reducing holding period of property to three years from five years.

A property dealer of China Scheme, Mushtaq Sulehri, said the real-estate business has slowed down since announcement of the budget in June last. He said that transfers of plots have almost stopped since the new fiscal year started. He said the rates of properties in posh areas like DHA and Gulberg have decreased by almost 25 percent. Presently, no one is ready to purchase a plot of Rs10million even in Rs7 million in those localities. Same is the case with properties of Islamabad and Karachi, he added.

He said that only a few deals were done on submission of affidavits during last one month. Moreover, we are waiting for the new list of property evaluation in city, he added.

Mushtaq said the investors are uncertain and also unaware how much they have to pay in duties on purchase of property under new assessment method.

Property dealers also demanded the government to reverse the taxation on property to the previous method of DC rate. They said the government, instead of initiating new system, should enhance the DC rate. Earlier, the DC rate was increased by 10 to 15 percent every year now it can be escalated by 20 to 25 percent for high revenue collection, they suggested.

An official of the Federal Board of Revenue was of the view that there is huge difference in DC rates and actual market rates in major cities of Pakistan. He said that FBR's valuation of property reflects the difference of 2 times to maximum 10 times depending on different parts of major cities.

He pointed out that there are few residential areas where difference in DC rates and actual market values is 30 to 40 times where DC rates were not revised upwards for the last many years.

“The FBR's valuators have estimated that the fair market value of property in Lahore was higher by 8 to 10 times on average. In Islamabad, the difference between the DC rates and fair market value ranges between 10 to 12 times. In case of Karachi, the actual market rates are 3-5 times higher as compared to the DC rates. For example, if the existing official value of property stands at Rs10 million and its actual market value is Rs50 to 70 million.”

The FBR has issued 15 notifications to categorise the different localities for fixation of valuations of immovable properties for calculation of payment of capital gains tax and withholding tax. The area-wise categorisation for valuations of Lahore revealed that the city has been divided into 231 areas for calculation of taxes on immovable properties while Karachi has been divided into 193 major areas for valuations of immovable properties.

The PML-N Traders Wing general secretary Shahid Nazir said that the government has taken a bold step to bring real estate sector into a documented economy. He said the impact of this reform would be significant as the tax would be applicable on both buyers and sellers.

Shahid said the government has tightened the noose against the real estate sector to force them to get registered to benefit both the national exchequer as well as the economy.

Moreover, the new taxation reforms will also end the speculative sale and purchase of properties, leading to artificial price hike in the sector, he added.