The government’s plan to halt the use of property development as a vehicle for black money transaction is beginning to take shape – and none of the stakeholders, including the government, seem too happy about it.

The fair market valuation by the Federal Board of Revenue (FBR) has increased the prices of residential properties in attractive locations by several million rupees compared to the old District Commissioner (DC), and the new taxes imposed have increased transaction costs by almost 200 percent in many cases.

The intended purpose was to eliminate the practice of undervaluing property to avoid declaring true assets of a person, but the immediate brunt of the FBR valuation is going to be borne by the average homebuyer. Property prices are already soaring in places like Defence Housing Authority (DHA) and Bahria Town in Lahore, and after the valuation they will continue to soar still. The imposition of extra taxation makes owning a home in this market a much more difficult job for the middle-class professional, let alone the poor man.

Also affected is the services industry related to the property market – the brokers, the dealers, and the legal consultants. They fear that the sharp rise in property prices and an even sharper rise in the transaction costs are going to lead to a slowdown in the business, making earning a living much harder.

Their fears have an element of truth in them; property markets remain jittery, even after negotiations between stakeholders and the government, and will continue to be so for at least a few more months. Big investors will wait and see where the market is headed while banks – who do a majority of their business with property developers – will readjust their lending and finance policies.

The only immediate beneficiary of this scheme is the government. Stopping black money transaction completely may still be a pipe dream but the government is set to collect millions in tax revenue. The government did not use independent evaluators as envisioned by the finance bill, and perhaps that explains why the FBR valuations are so high.

The state will make money, but the common man suffers – another consequence of the state’s failure to collect direct taxes and its policy of indirect taxation.