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Friday, May 17, 2024

Informal economy and real estate market of Pakistan

According to the Pakistan Bureau of Statistics, the real estate market value is between $300 to $400 billion, about 2% of Pakistan’s total Gross domestic product (GDP). It is not a small amount. It is a massive loss for the Pakistan economy if it is out of circulation. Real estate saving is assets for individual or company investors while it is a liability for the Pakistan economy. 

The real estate market is one of the most unregulated markets in Pakistan. There is no central authority for collecting taxes or regulating real estate except for CDA, PDA, etc., and No one is asking from the investors where their capital is coming and where it is going. The transaction of the market is not reported to the government. In general, the underground economy exists due to heavy taxation, over regulations, prohibition of any activity by the government and corruption, etc. Still, in Pakistan, especially in the real estate market of Pakistan, it is the opposite. People are investing due to tax relaxation and no or low regulation.

This lack of checks and balances extends to other aspects of the real estate industry. Any authority in Pakistan does not regulate the capital investment in the Real estate market, and a few questions arise: Is the Capital in real estate circulating in the economy? From is arising from capital is coming to real estate?

Read more: How would new real estate taxation impact prices & stock market returns?

Do the seller and buyer pay any tax?

To Answer these Questions, we conducted Interviews with real estate agents in Islamabad. We get the answer. The answer is straightforward when a person retires and receives a pension. They directly invest in the real estate market, and also the majority of the people prefer to invest their savings in real estate instead of keeping them in banks because it loses value, while real estate is one of the safe zones for investors where their investment is safe and also earning profit after years, even with or without any construction development and that investment in real estate market is out of circulations. In Developed countries, Real estate plays a vital role in developing the economy, while in Pakistan, the situation is adverse.

According to the Pakistan Bureau of Statistics, the real estate market value is between $300 to $400 billion, about 2% of Pakistan’s total Gross domestic product (GDP). It is not a small amount. It is a massive loss for the Pakistan economy if it is out of circulation. Real estate saving is assets for individual or company investors while it is a liability for the Pakistan economy.

According to the Pakistan Institute of Development Economics study, “Many governments or politicians claim real estate is the leading economic sector everywhere. If you look at the US, one of the big things that NBI did a long time ago was developed leading indicators of the economy. Leading indicators are what lead the business cycle. Real estate is a leading indicator of the economy everywhere in the world. The reason is straightforward for us to function; we need real estate for me to function. I need a house for you to function. It would be best if you had an office for us to shop. We need retail; for us to travel, we need hotels. Everything is real estate. Even factory making is real estate. Everything begins with real estate.

Read more: Zameen.com uplifts Multan’s real estate sector with mega projects

All human activity begins with real estate

So real estate is in the sector. Real estate must be allowed to develop. Nobody is saying that real estate is the only thing that you develop. But if you handicap the real estate sector as we did for the last three years, you cripple the economy. For balanced development, we must give the real estate the same space. Real estate development, which is construction, does not block making the same space as we give every other sector in the country”.

In summing up, the real estate market needs regulation; by regulation, we don’t mean over-regulation. There should be a proper check and balance on capital, whether black or white money and where it goes. Second, the government must set regulations in which there should be time work to construct buildings after buying plots. In case of violation, the government imposes a fine.

Read more: Real estate industry of Pakistan: Land lords vs state lords

Third, there is no taxation in selling and buying properties, so the government must charge a nominal tax. Suppose government takes these steps in the reward. In that case, the billions real estate market will shift from the underground or informal economy. The time framework for construction will generate millions of employment, and last, government revenue will be enhanced via taxation.

 

Ihsan Ullah, M.Phil. Economics Scholar and currently working as a Research Assistant at Pakistan Institute of Development Economics, Islamabad. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.