REAL ESTATE

 The budget has affected the realty market!

BY M.K.AREOLA
Jun 15 - 21, 1996

Last month when the PAGE Real Estate (PRE) said that "the budget is not going to have any pronounced impact upon the real estate market other than the plus and minus of inflation," (issue no. 21, May 25-31'96) what we had reflected was the consensus of "most of the experienced estate dealers" in the City.

And they had, as usual, based their opinions on the constants and variables of the trade. But none of the variables recorded any change.

And this is where the phrase "bolt out of the blue" comes in. It has come in the shape of the Wealth and Capital Value Tax imposed by the federal government in THE BUDGET!

Our case rests!

Capital Value Tax will now be charged at 5% of the value of the property, and that too, is levied on property that is above 500 square yards and is charged from the persons who are not tax-payers or, in other words who didn't have an allocated National Tax number (NTN).

And as far as Wealth Tax is concerned, residential plots upto 500 square yards are exempted from this tax as before, while owners of plots above 500 square yards and below 1,000 square yards will pay Rs.2,000, for plots measuring one thousand square yards but less than 2,000 square yards they will pay Rs.5,000 whereas for plots measuring 2,000 square yards and above they will pay Rs.10,000 as Wealth Tax annually.

Flats and apartments upto 2,000 square yards in size are, however, exempted from the tax while those of 2,000 square yards and above will pay Rs.2,000 annually as Wealth Tax .

The stamp duty on house transferring too, has been increased to 10.5% for those who are regular tax payers and 15.5% for those who do not possess 'NTN'.

Landlords with their houses, flats or apartments on lease will now on have to pay 20% every year as tax.

The estate agents, who normaly remained unconcerned in the past about what a new policy on property -- as long as their commissions were forthcoming, -- have also been included in the list of tax-payers this time. The provincial budget has now levied a 0.5% turnover tax on real estate agents beside the 10% withholding tax imposed in the federal budget.

Impact

The first positive role these taxes are going to play in the real estate market, PRE learnt, is that there is going to be more of white money in the market than the black varity. Measures such as declaration of the source of money being used may soon become mandatory and in turn may, scare away the speculators as well as their money.

The second plus point of the new policy is going to be the control of prices in the market. Once the speculators are no more in the market, genuine buyers will stick to the reality or prices and because of the taxes, the government control price may increase now bringing down the inflated prices further. The Sindh Rent Control Act which governs the leasing of property in Sindh may now be taken out of the vault after almost a century of neglect.

Estate Agents

Driving along the main Clifton Road one could count as many as fifteen to twenty estate agents located on both sides of the road though the number may not be as many along other thoroughfares. This may not be the same anymore as in times to come the tax imposed on the real estate agents is bound to scare away the smaller ones in the market.

Real estate business was till recently considered a business of every Tom, Dick and Harry in the City since all it required was a telephone line and some means of becoming mobile when need be. And since there is no rule governing entry into or exit from the market, everybody just entered or left the estate market any time they felt like it.

A man (name withheld) was with an estate Agency, claimed to be the largest in the country, as a part-timer, as he was working as a regular staffer of a company in the morning. He served the estate agency for almost eighteen months during which time he acquired enough knowledge to establish his own business and became a full time estate agent. This is not a lone instance, it has become a trend in the market over the recent years .

Generally, there are three types of these agents in the city. The first type are those with an office, although it may be a very small office and a one- -man show. The second type are those operating from their own homes. All this group needs is a telephone line and a daily newspaper where they get their clients from. Housewives and students form the most part of this group. The third group, known as 'briefcase agents' operate on the move. Since they do not have any place or phone they are usually seen working with the first and the second group for their own commission.

The other thing that this policy may bring to the market is the regularisation of the otherwise irregular market (industry) which may also bring the realtors together to form an association -- something which they have been too busy to do all these years.

The present trend in the market is that people are apprehensive of the tax and the damage it could do to their market, especially the speculators. Since the market is showing a downward trend at present, taxes may push the market further down and therefore most of those holding on to open plots as investments are now running around to dispose of them before the tax policy becomes effective and they have to divulge the sources of their money.

As far as genuine owners are concerned, there was a mixed reaction in the market. Those who possess only one bungalow or plot are not in favour of it. Those who have various properties scattered all over the city are not opposedd to the idea. However, the ones who will be seriously affected are those who have secured their houses or apartments through loans. An additional Rs.2,000 to Rs.10,000 annual tax plus water tax, electricity charges and enhanced rates of construction material especially cement on which duty has been raised from 25% to 35% are surely not a welcome idea.