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Taxes shaking real estate transfers

LAHORE: Trading activity in Lahore’s real estate market has remained stagnant for the last four months. A major reason for the lacklustre activity – excluding the ongoing political turmoil – is the increase in the number of taxes imposed by the Punjab government.

An increase of a few thousand rupees during property transfers was accepted by real estate agents. However, the decision to increase values of immovable properties by the deputy commissioner (DC) has caused worry for people associated with the sector.

The increase has resulted in a rise in the amount of transfer deeds, which according to estimates by market experts, has risen up to 500% in different areas of the city.

“We are experiencing fewer plot transactions since the duties and DC-imposed values of immovable properties have been increased,” said Ijaz Ahmad, a real state expert.

“Political instability is another reason why the market has not been performing in the last four months.”

There is still a huge gap between actual prices and DC-imposed values of land in all areas. The government often keeps these values low in a bid to acquire the land for different infrastructural projects.

The values differs from area to area — for example the DC value of Lahore’s prime real estate area – the Defence Housing Authority – has been increased to Rs4 million from Rs2.2 million for phase 7 for a one kanal plot, whereas the adjacent phase 6 value has been increased to Rs4.5 million from Rs2.5 million.

The increase in DC rates has resulted in a surge of taxes applicable during property transfer. Despite a small percentage increase – a mere 1-2% – the actual rise at new rates has caused distress.
“It’s getting difficult to survive in the market due to the huge increase in transfer prices,” said another real estate expert, Sheikh Ghafoor.

“The transfer price for a one-kanal plot have risen up to Rs350,000 from Rs155,000 – an increase of 126% in DHA.”

The transfer fee in other societies has also risen. In Johar town, the fee for a one-kanal plot has witnessed a massive increase of over 500%.

“We used to pay Rs70,000, which has now increased to Rs435,000,” said Ahmad.

Despite all the changes, the prices remain relatively stable. Nearly all prime localities in Lahore including DHA, Bahria town and Johar town have shown little or no decrease or increase in land prices. This is due to the market adapting to changes during difficult financial periods “The market is getting mature and people now invest in real estate with a sense to hold the properties to weather the storm,” said Shaukat Khan, a real estate investor.

“Previously, people preferred selling their properties to get out of the unpredictable market, but due to the consistently worsening conditions, they have been seasoned to respond in a way that keeps the sector stable.”

Published in The Express Tribune, October 9th, 2014.

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