Let’s talk about plot value depreciation, a topic that often stirs confusion and concern among investors. Many people believe that the depreciation of plot values is primarily due to a country’s instability or economic factors. However, this is far from the truth. On the launch day of Cloud Residences, Atif Mustafa Khan, CEO The Cloud Services delivered a powerful speech that addressed a prevalent misconception about plot value depreciation. The real reason lies in government policies, specifically those implemented by the government between 2022 – 2024. 

Today, we’re going to unravel this misconception and shed light on the true factors affecting plot values in Pakistan.

The Misconception: Country’s Instability

A widespread belief is that plot values fall due to a country’s instability. Political unrest, economic downturns, and security concerns are often cited as primary reasons. This belief persists because it’s easy to correlate a country’s overall stability with property values. When the news is filled with reports of turmoil, it’s natural to assume that such instability would deter investment and drive down property prices.

The Real Culprit: Government Policies

Contrary to popular belief, the primary cause of plot value depreciation in Pakistan isn’t the country’s instability but specific government policies. Shehbaz Sharif’s administration introduced several measures that directly impacted the real estate market. One such policy is the 7C rule, which has profound implications for property values.

Impact of the 7C Rule on Plot Values

The 7C rule includes a 1% tax on property, which might seem insignificant at first glance. However, this tax has a cascading effect on property values. When property owners have to pay this tax, it reduces their net gains, leading to a reevaluation of property prices. Over time, this policy has contributed significantly to the depreciation of plot values.

Tax Policies and Their Influence on Investments

To better understand the impact, let’s compare this with other sectors. For instance, when you sell a plot and make a profit within the first year, the government imposes a 15% gain tax. In contrast, the tax on factories is 35%. Initially, the real estate sector was tax-exempt, making it an attractive investment option. However, the removal of this exemption changed the game entirely.

Historical Context: Tax Exemption Era

There was a time when the real estate sector in Pakistan enjoyed tax-exempt status. This period saw a surge in investments as people flocked to buy plots, anticipating substantial returns without the burden of taxes. This tax exemption era created a bubble where plot values soared due to high demand.

Policy Change in June 2022

The turning point came in June 2022 when Shehbaz Sharif led government removed the tax exemption on real estate. This policy shift had an immediate impact on plot prices. As investors adjusted to the new tax landscape, the inflated property values began to reverse, leading to what many perceived as depreciation.

The Role of Demand and Supply

The dynamics of demand and supply also play a crucial role in this scenario. With the introduction of new taxes, the demand for plots decreased as potential buyers reconsidered their investments. On the supply side, more plots became available as owners looked to sell off properties burdened by the new tax regime. This imbalance further contributed to the decline in plot values.

International Comparisons

To put things in perspective, let’s look at property tax rates in other countries. In the USA, for example, the property tax is around 4%. Despite this, people still invest in real estate but tend to favor industries and small businesses more, which contribute directly to economic growth. Countries like China, and Turkey also flourished by encouraging entrepreneurship and industrial investments. In these countries, government policies are designed to support economic growth through various sectors, including real estate.

Conclusion

In summary, this article sheds light on the true reasons behind plot value depreciation in Pakistan. The depreciation is not primarily due to the country’s instability but rather specific government policies. The introduction of the 7C rule and the removal of tax exemptions have significantly impacted the real estate market. By understanding these factors, investors can make more informed decisions and better navigate the complexities of plot investment in Pakistan.