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Farooq

Wednesday, May 30, 2018 10:10 PM PST

Dear Fellows,

Really need an expert advice as I am extremely confused :(
(Note: My understanding of new tax policies might be flawed as I am not an expert)

I am planning to buy a 1 Kanal house in DHA Lahore Phase 6 Block J before Eid. Its for living and not for an investment and I can wait if needed till the market gets stable and new tax policies become clear. Is it the right time to buy or should i wait ? I might be spending around 40M, going for a simple house.

Now the situation is extremely confusing owing to the new taxation measures that would get effective on 1st July, 2018. Also there is a chance that the new taxation measures may not be implemented in original form due to pressures from the real-estate dealers unions.

Anyway, I understand that following new policies would drastically effect the prices in real estate market if get implemented after 1st July, 2018:

1...Non-filers cannot buy a property of more than 5Mn. Note that 5Mn is the declared value which could not be the FBR value anymore. So considering the below mentioned buy-back policy at 100% excess, a non-filer can buy a property of no more than 10Mn. This would significantly reduce the number of investors or genuine buyers as most buyers still fall in the non-filer category. Even if they are filer, very few would have a declared saving/income of 5Mn in wealth statement. One can imagine how this reduction of buyers would impact the property prices.

2...Abolishing of FBR rates and implementation of Buy-back policy at 100% excess of the declared price.
I understand that this means that for a property of 40M, safe declaration would be at least 20Mn+ which is way high compared to the current FBR rates. Hence the amount of taxes will increase. Also 20Mn will have to be shown in the wealth statement as only the filer can do this transaction of more than 5Mn. As per my understanding, very few would have a declared saving/income of 20M in the wealth statement. So this will REDUCE the investors/genuine buyers and will have a HUGE impact on property prices.

BUT if i buy the same property now before July 1st, then taxes will be on FBR rates, the tax amount will be less and I can show only the FBR rate (Which is around 7Mn at the moment for 1K in DHA) in my wealth statement and hence reducing less from my declared savings/income in wealth statement. Though I might pay HIGHER prices as compared to the post 1st July prices losing millions later on. Is the saving in taxes and savings in declared income in wealth statement worth losing in the actual price of the property ?

Please advise if my understanding is correct or flawed and what should I do considering the pros and cons of buying now.

Khan88 replied on Wednesday, May 30, 2018 10:19 PM PST

I don't personally call my-self a tax expert but few things are clear:

Taxes are not flawed - that is just a specific angle that you are looking at and taxes will not be reversed only increased.

Property prices will decrease substantially not only because of taxation but also elections and the general uncertaainity so 40 Million plot should be 35 Million or less in the next 3-6 months.

You can still declare any asset (including savings) and pay 1% tax to make it legal with the amnesty scheme.

My suggestion: Don't buy - wait and wait.

thinker replied on Wednesday, May 30, 2018 11:27 PM PST

Your understanding is correct. However keep in mind two more things. If you are a filer or a non filer, if you buy property you will get an FBR notice to come to their office and explain your source of income. A lot of people I know who bought plots or cars have gotten this notice. So you will be on FBR radar after the purchase. Secondly if you declare less value and at the time of selling you have to declare the real value due to some reason, you will have to pay 10% gains tax on the difference between your declared purchase price and selling price. I would recommend waiting and see how new rules are implemented by the new Government. They might change this law under pressure from investors or not. Another factor is pressure from FATF which wants complete documentation of the economy so the next Government may have to keep this law due to international pressures.

Lawyer Lahore replied on Thursday, May 31, 2018 12:26 AM PST

I think we will see the worst crash in property market in the near future as no buyer will be available in the market especially for expensive properties.

Investor replied on Thursday, May 31, 2018 03:32 AM PST

Even if imran khan govt came in the nxt elections. This new policy can't be reverse. Due to IMF pressure govt have to increase its tax net. So if we see the positive side, people have no option left. They have to become filer at some point. Otherwise they can't buy even a CAR . Plus non filer can't open foreign currency account also. So after becoming filer you have to pay only 1% on market value so becoming a filer is not a bad option at all. All people are making bad rumour because 90% people are non filers in real estate.but these 90% nonfilers change their status into filer. Real estate wil see the good impact.

Tahir Lutfi replied on Thursday, May 31, 2018 03:58 AM PST

If u want for gains then avoid investing and wait as khan88 recommended. If u r willing ur own house then be a filer and purchase after giving 1 percent to Fbr as ammenisty

It does not matter before 30th June or after it. FBR will catch u as such big transaction can't be unattended from their eyes.

Jameel Mughal� replied on Thursday, May 31, 2018 06:06 AM PST

I don't think there will be any crash, Market is stagnant and may stay like this for few more years, Crash is due to some reason, after 2,3 Cycles in property market in last 30 years people know who will sell in slump will be a fool. I don't think you will see significant discount in Near future Neither I think Dollar will be 140, In Interbank market Dollar is stable at 115.5 From March till now.
Yes Political situation is uncertain but that will cause no effect on Prices unless some valid legislation is done to discourage real estate holdings which looks unlikely. As PPP is Raiz Malik friendly, IK have two property Tycoon on his left and right and PMLN is always business proponent.

M. Mujtaba Syed. replied on Thursday, May 31, 2018 07:04 AM PST

Dear Mr Farooq,
2/3 People are replying here on each and every post and saying again n again that Property Market Will Crash after 1st July. It can be their personal opinion but believe me anyone's personal opinion is not gonna make any change in property market. People will become Filer and business will keep on moving.
Do you really think no one will buy house or buy a Car after 1st July?
Market is Stagnant because of many factors including Ramzan, Elections, Political instability etc. And more transactions will definitely start in few months.
Aap Allah Ka Nam lay ker Gher purchase kerain. InshaAllah kuch Nahi Hoga..
Regards!!

Khan88 replied on Thursday, May 31, 2018 08:12 AM PST

Stagnation is also a loss - timing is everything and luck matters.

Farooq replied on Thursday, May 31, 2018 12:24 PM PST

Dear All, Thanks for your valuable opinions...Let me emphasize one important point again that could deter the buyers as per my understanding....

Becoming a FILER is not an issue...Having enough WHITE declared tax payed money in wealth statement is the main thing...

It takes MINUTES to become a filer...its not a big deal...The main thing is to have the "WHITE" tax payed amount in wealth statement...I spend 20Mn on a house as a filer and I have to deduct this amount from my "White" accumulated income in my wealth statement...if someone doesnt have this tax payed White amount in the wealth statement then no use to become a filer only because the 20M property cant be shown in income tax return and FBR will definitely pick this discrepancy and will ask about the sources...

The point is those who dont have enough white amount wont be able to buy at all...in normal business, it takes years to accumulate enough funds in the wealth statement by paying income tax regularly....so the buyers would reduce and this might create a slump...is this right ?
Amnesty scheme is available till 30th June only...Other methods of whitening of money are also being monitored now...this includes foreign remittances, gifts etc.

Lawyer Lahore replied on Thursday, May 31, 2018 04:02 PM PST

Very good point raised by Farooq. Wealth statement is the main thing. Becoming a filer even with zero income is easy but at the time of purchasing a property, the wealth statement should reflect the source of funds by which the property is purchased and this reconciliation would be pretty hard for the majority of tax filers. So overall its not that simple.

acchi replied on Thursday, May 31, 2018 05:19 PM PST

can any one analysis the impact of tax for buying and selling property by oversea?and requirements of filing return as well.

from UK replied on Friday, June 1, 2018 12:13 AM PST

FBR will shortly put a one page form on their website which can be filled by an overseas Pakistani and become a filer. They dont have to pay any tax.

Rao Asif replied on Friday, June 1, 2018 02:26 PM PST

Also they should have enough money transferred through bank channel. Any other source of transferred won't be count as white money.

Asif replied on Friday, June 1, 2018 10:22 PM PST

as taxation is being discussed, If anyone gone through from the same path or have any idea, I have few confusions on being a filer as overseas pakistani:
1. Do I have to disclose all my assets and have to justify sources for all of them even it was purchased a long ago (normally people dont bother to keep record).
2. If I can justify few assets only, i have to pay 5% (under amnesty) on rest of assets on current value or purchased price.
3. What was treatment for assets for which sources can't be proved in absence of amnesty if one wanted to be a filer.
and lastly
4. What are suggestions for overseas, should one become filer? if yes How they will face inquiries of FBR while being abroad? Scary !

Thank you in advance for sharing your experience/knowledge.

Nabeel� replied on Monday, June 4, 2018 06:44 PM PST

My friend:

There are two elements to your question. If you buy now, you assume you pay less taxes and higher price. If you buy later, you assume you pay more taxes but lower price as prices will fall.

1. Taxes differential is not much. For filers,now it is paid at 2% of FBR value. After 1 July will be 1% of actual value. If you go by the
book, taxes are not a significant concern for you.

2. In terms of prices, chances are that big ticket items will decrease in prices as buyer pool will be limited in short-term due to few
filers, so you may pay a lower price. My recommendation is, if you can wait, wait 6 months to 1 year to see how much of a price
fall will be there.

Farooq replied on Tuesday, June 5, 2018 04:23 PM PST

Dear Nabeel, Thanks for your keen analysis...
1...Agreed/understood that tax differences might not be significant if i buy after 1st July.
2...Agreed that prices will fall due to limited pool of buyers after 1st July.

But I request your attention and opinion in one more issue::

If i buy now then i will have to convert less amount of cash to asset in my wealth statement...Like now i might show FBR value which is around 8.0Mn for phase 6 + 3.0Mn construction cost so total 11Mn for IK house...so I only convert 11Mn from cash to assest in my wealth statement...
But later on it might have to be higher because FBR wants us to declare at exact transaction value and threatens us to buy back the property by paying 100% excess so safe declaration for 1K house might only be 25Mn or more. So i will have to convert 25Mn cash to asset in my wealth statement. So it will reduce my cash in wealth statement for future transactions.

Is that right ? Your opinion would be appreciated.

Nabeel� replied on Wednesday, June 6, 2018 02:49 PM PST

Farooq Sb.

-My understanding is your main issue is you do not have the source of your funds.
-Purchasing decision is a separate issue.
-Becoming a filer means while you benefit from lower taxes and charges, you also need to show the source of your income when called upon by FBR. In case you do not have source of income, govt. has offered amnesty scheme.
- Those who are planning to show only 50-60% at time of purchase, need to be aware that seller will not agree for big transactions. Example you buy 4 crore property and show it as 2 crore for tax purpose.
Buyer will give Pay Order for 2 crore and 2 crore cash. First of all buyer will pay high taxes while withdrawing 2 crore cash versus if he paid 4 crore Pay order.
Second when seller receives 2 crore cash, if he deposits in bank this will become black money as unable to show source since no tax paid on it. If seller is willing to take cash and keep at home, then risk of cash being stolen from home.

Abdul Qadir replied on Saturday, June 30, 2018 01:15 AM PST

I think the purpose of initiator of this discussion was to highlight that property values will go down. So if he really intends to buy a house; he would like to buy as cheaper as possible. It is as simple as that.

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