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PAKISTAN REAL ESTATE INVESTMENT FORUM

(Regd.)
120-C, B Commercial Area, Phase 1. Defence Housing Authority (DHA), Karachi-75500, Pakistan.
Cell: 0300-2010707; Tel: 021-35387774, 021-35384121, 021-35843888; Email: preif.official@gmail.com

16th April, 2018

To: Hon. Members of Sub-committee of National Assembly Standing committee on Finance, formed for the
purposes of looking into issues pertaining to the real estate sector

RE: IMPORTANT MATTERS PERTAINING TO REAL ESTATE SECTOR OF PAKISTAN

We would like to summarize the matters of interest for your kind attention.
Anomalies in FBR valuation tables
1. Port Qasim – FBR value is too high compared to market value in the entire Eastern Zone of Port Qasim
2. DHA – It is proposed that FBR values should be increased in DHAs suitably so as to bring them up-to the
market values in 3-4 years as originally planned by the government.

Uncertainty for overseas Pakistanis

It has been announced recently that starting July 2018, non-filers will not be able to purchase real estate of value
above 4 million. Yet no roadmap has been given for overseas Pakistanis who send billions of Rupees every year
to invest in real estate but do not file taxes in Pakistan. For the purposes of real estate purchase, it is proposed that
their NICOP should be considered equivalent to NTN and filer status, otherwise this would cause a major
disruption in the real estate sector. Such a step needs very careful consideration.

Expanding the coverage of the FBR valuation tables

Currently the FBR valuation tables cover only 21 cities of Pakistan. It is understandable that FBR does not have
the machinery to cover the entire country of over 200+ cities and towns. Therefore, it is proposed that, FBR takes
the current list of DC values for all cities and, as a first step, simply increase them by 15% to notify the initial
FBR valuations. And this step should be combined with the removal of the upper cap of section 236W (explained
in the next section) as these two steps will have a combined effect of fast documentation of the real estate economy
along with far greater revenue collection for the government.

Remove upper cap of section 236W

For the purposes of tax u/s 236W, there’s currently an upper limit i.e. the FBR valuation. In several areas of the
country, FBR-notified property valuations are still a lot lower compared to actual market values of property.
Under the current law, property purchaser cannot avail section 236W for property values above FBR-specified
values. This forces them to use non-official payment channels for property transfers. It is proposed that property
purchaser should be given the option to register at market values and pay 3% up-to those higher values to avail
section 236W. The upper limit of FBR value for the purpose of taxation under 236W should be removed. FBR
value should be the baseline (minimum value) meaning purchaser must pay 3% at least up-to FBR value; but
should not be forbidden from going higher. This will automatically ensure that the culture of recording real estate
transaction will change in the fastest possible time and they will be registered at market values.

Buy-back option announced by government

It is being heard in news that starting July 2018, federal government will have the option to buy back property at
100% higher value than the registry price. While this sounds good in principle, this is a cause of concern because
such a practice in India led to massive corruption and it is feared that the same might be the fate of the scheme in
Pakistan. We sincerely believe that such a scheme would be effective once the institutions of state operate
transparently, there is a general widespread sense of trust on them and they are not perceived to be harassing or
blackmailing its citizens. Details of the buy-back scheme have not been provided e.g. which federal institution
will be authorized to perform the buy back? Would it be Federal Board of Revenue (FBR)? FIA? NAB? Or any
other? In the absence of a clear roadmap of how this scheme would work, there’s a great deal of uncertainty in
the real estate sector.

FBR valuations being abolished?

There is also news that FBR valuations are being abolished and provincial governments have been requested by
federal government to abolish DC valuations. However, coordination between federal and provincial governments
have not been good in the past. And lack of coordination will lead to confusion that is not good for the sector. A
more practical approach would be to not wait for provincial governments to abolish the DC rates, keep ITO
section 236W intact to bridge the gap between the DC rates and market rates, and remove the upper cap of section
236W. This will automatically ensure that real estate transactions will be registered at market values in the fastest
possible time.

Establishment of regulatory authority focused on real estate

We strongly propose to establish a real estate regulatory authority along the lines of RERA in UAE. Like UAE,
real estate is a very sizeable sector in Pakistan and requires a focused approach regulating this area. A large
number of Pakistanis (both residents and overseas) have always considered real estate to be the safest way to
invest their hard-earned money and one way to protect their rights, prevent fraudulent activities, and to ensure
investor’s trust is not broken is to have a regulatory authority with the mandate to research and formulate
regulation to protect their rights.

We sincerely hope that the government will consider industry feedback and resolve the issues in consultation with
the stakeholders.

-Pakistan Real Estate Investment Forum (PREIF)