Prime Minister Shehbaz Sharif has postponed a decision on the proposed tax incentive package for the real estate sector due to unresolved concerns.
The decision follows extensive discussions with key stakeholders, highlighting the complexities of reforming the country’s real estate taxation policies.
The Federal Board of Revenue (FBR) has strongly opposed the proposal to grant first-time home, shop, or office buyers an amnesty of up to Rs. 50 million.
The FBR has warned that such an exemption contradicts agreements with the International Monetary Fund (IMF), which strictly prohibits tax amnesties.
The government’s commitment to honoring international agreements, particularly with the IMF, has influenced the decision to delay the package.
Discussions in the Housing Sector Task Force
The government considered lowering property transaction taxes to encourage more real estate investments.
However, while lower taxes can boost investment, some members cautioned that this could also lead to speculative buying, artificially inflating property prices.
The FBR chairman supported the removal of the 3% Federal Excise Duty (FED) on real estate transactions, arguing that it would reduce costs and encourage legal property dealings.
To make housing more accessible for lower and middle-income groups, the government is also considering interest rate subsidies on home loans.
Challenges in the Real Estate Sector
Lower interest rates can make mortgage payments more affordable, thereby increasing homeownership rates among lower-income families.
The sector is largely unregulated, with agricultural land frequently converted into housing societies without proper approvals. Many projects proceed without government oversight, leading to issues such as legal disputes, environmental concerns, and insufficient infrastructure.
An oversupply of residential and commercial plots in certain areas has led to market saturation, lowering overall property demand and negatively impacting prices.
