Impact of Govt relief package on commercial construction sector

Impact of Govt relief package on commercial construction sector

Remember what I have been telling you for years that the future of Pakistan real estate is in commercial construction projects. Now it is the writing on the wall after the announcement of the relief package for the construction industry by Prime minister of Pakistan Imran Khan on 3rd April 2020.

The package is directed to create jobs and activity to help Pakistan and its economy during these troubling times. However it is going to change the face of real estate for times to come.

The important points of the package are as under:

1. Complete amnesty and no question will be asked about source of investment in the construction sector this year.
2. Fix Tax Regime for the construction sector.
3. 90 percent Fixed Tax will be waived off if invested in Naya Pakistan Housing Scheme.
4. All With Holding Taxes waved off.
5. Federal Government will discuss with Provinces regarding sales tax reduction. Punjab and KPK have already reduced sales tax to 2 percent.
6. No Capital Gain Tax will be charged on sale of house used for living ( More details will follow).
7. Rs 30 Billion Subsidy will be given  for Naya Pakistan Housing Scheme.
8. Construction sector will be awarded the status of industry.
9. Construction Industry Development Board to be established for the development of the Construction Industry.
10. Banks will be advised to give loan at 7% interest rate for construction of houses.

The entire package is clearly pointing to the direction our real estate industry is heading in future. Although the over all package is not just about real estate, it does clearly state the intention of Govt policies towards real estate.

We have told you many times in the past that the Govt sees commercial construction sector as a way to bolster our economy however selling of plots and files is not considered a vital element and therefore the policies of the Govt have been in favor of those projects which will create job opportunities and strengthen the associated industries.

HIGH RISE including commercials, offices, apartments and HOUSES/COMMERCIALS being constructed in developed areas are the real target of the Govt relief plans. On the other hand under developed real estate ” PLOTS & FILES”  only got reduction in stamp duty by 3% and now stands only at 2 %.

In addition the Govt has also allowed the construction industry to start operating there projects after 14th April 2020.

The few points that are most important to you as investor are:

• Complete amnesty and no question will be asked about source of investment in the construction sector till year end (31st Dec 2020).
• You must invest in a construction project before 31st Dec 2020, this could include construction of apartments, commercial mall, house or plaza etc.
• The transfer of property of the construction project you have purchased on installments must be before sep 2022 to fall in the amnesty offered, however more details will follow on this apsect in a few days.
• Stamp duty has been reduced to 2% from 5% which will reduce transfer charges.
• Banks will give loans at only 7% interest for construction of houses.

More details will follow and we will keep you up to date however for now lets not mix things up and will analyze the general effect of these policies separately on plots and construction projects.

Construction Projects.

Construction projects include all kind of construction activity including building of infrastructure roads etc however we will only be analyzing the effects on commercial construction projects such as HIGH RISE incl Apartments, commercial malls, office complexes and HOUSES.

Most of these projects are available on installments and the most important amongst all is the amnesty about source of income for the year 2020. This is only applicable for one year and its more like an amnesty scheme, where you can invest all you want and no one will ask you the source of the money. Although more details will follow shortly but this is as big as it can get, its a black cheque handed over to this industry and if it kicks off we may see a boom in real estate commercial projects as soon as 2021.

This is a smart move, Govt knows that billions of dollars is lying around in black and if they find a way to bring it back into economy we will be able to survive these hard times.

Lowering of stamp duty will also have an impact on this sector of real estate, not as big as the above factor but surely will bring more positivity.

Plots & Files

Government sees plots as an impediment to economic development and they are not entirely wrong. It is time for societies to start moving into that direction as well and offer constructed houses rather than plots which lay around for decades without giving any impetus to our economy.

Under the present scheme you can buy plots in developed areas (residential or commercial) and start construction of houses or plaza before 31st Dec. All such projects must be completed before Sep 2022 to fall under the amnesty offered by this scheme. This will help developed areas to sustain recession with minimal impact while developing construction activity in the process. However under developed areas not under possession are not covered by this amnesty.

In addition reduction of stamp duty to only 2% will also help this sector to sustain and might even grow during the recession. 

Another good thing that may come out of this is that even if investors are not offered much relief for investments in under developed plots in this package the developers certainly will get benefits in terms of tax relief. Thus may be more beneficial to that particular tier. This will also ensure that developments of societies continues across Pakistan providing much needed employment.

For now that is my take but let us wait for more details to emerge and once we have everything on paper we will reevaluate our take on this package offered by the Govt.

Capt (retd) Shahnawaz Yaqub Bhatti

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