For long-term investments, real estate is one of the safest options because of two major reasons. First, the real estate market is usually stable even in the time of unforeseen crisis (even during COVID-19, this sector effected less). Second, as house is basic need of every human, so demand for residential units always goes up. In Pakistan, too, investing in real estate is the most followed trend and the rising demand of units in the country has welcomed many new players in the industry. What are incentives for real estate investors in Pakistan? Is this sector really profitable in investment point of view? What are major reasons which make real estate sector least risky. Below mentioned incentives for real estate sector make it crystal clear that why everybody should invest in this sector.
Incentives for real estate investors in Pakistan
In the past few years, a lot of investments in different sectors have been made by local and foreign investors. The incumbent government of Prime Minister Imran Khan is focused on making economic reforms, policy changes, and incentivizing different sectors for economic uplift. These initiatives have definitely helped in bringing new investments in the country and encouraged new players in all the industries. Similarly, the government has also encouraged builders, developers and investors to come forward with new projects. The current annual demand of housing units in Pakistan is about 700,000 and only half of this is being met. The deficit of housing units and commercial buildings in the country is an opportunity for existing builders, developers, and investors to increase their investment for higher returns and new players to explore this sector and diversify their portfolio.
Exemption from Withholding Tax
The exemption from withholding tax can be availed by all eligible builders and developers on the purchase of building materials used in construction. Moreover, the provisions of sections 150 and 153 of the Income Tax Ordinance shall not apply to builders and developers on the purchase of building materials except cement and steel. It also states that apart from the services provided by companies, withholding tax shall not be applied to services of plumbing, shuttering, electrification and other similar services. The dividend income paid by a builder or developer company out of the profits from a project to a person shall also be exempted from tax and other tax withholding obligations.
You may check Income tax ordinance to see which sectors are exempted from tax https://download1.fbr.gov.pk/Docs/20217141672549772IncomeTaxOrdinanceAmendedupto30.06.2021.pdf
Builders and developers can reap benefits from Naya Pakistan Housing and Development Authority
The federal government has introduced the Naya Pakistan Housing Scheme under which low-cost housing units are being developed across the country for everyone who can own a home. The government is offering these housing units at subsidized rates through bank financing at easy monthly instalments. Builders and developers who are working on projects under the Naya Pakistan Housing and Development Authority (NAPHDA) will be eligible for a big slash of 90% on the tax payable on their income and profits. These projects are being developed on both government and private land. Models for both types of developments differ in terms of conditions that are specified by the NAPHDA. However, facilities and incentives for both projects remain the same which are:
- NAPHDA will facilitate builders and developers in getting required approvals and no-objection certificates (NOCs)
- NAPHDA will help in coordination with respective local governments for the provision of basic necessities required for the development of the project such as electricity, road, water and sanitation system. The infrastructure will be laid up to the project site and the rest will be developed by the builder
- NAPHDA will help in arranging the end buyers and mortgage facility from banks for the low-income group segment. In case of projects on private land, the authority will arrange buyers and mortgage facilities for 20% low-income group
- A tax rebate of 90% will be applicable on the builders and developers of low-cost housing
Why are these opportunities available for investors and developers?
The government has provided these facilities and incentives for real estate investors and developers because this industry has a huge potential and is continuously flourishing. Some of the stable and potential real estate markets include Karachi, Lahore, Islamabad, Faisalabad, Multan and Rawalpindi where people have the need and also the buying power to invest in quality real estate developments. Furthermore, the State Bank of Pakistan has fixed mandatory targets for local banks to promote the housing and construction industry in the country. This initiative has provided potential buyers with the required buying power to invest and buy their own houses.
This goes without any doubt that real estate sector will show a great boom in near future. The current market trends are proving that one has to invest in this sector to generate reasonable income. If it is so, then what are you waiting for? Come, invest, and make good money – Good Luck!