{"id":86796,"date":"2020-04-06T12:54:34","date_gmt":"2020-04-06T12:54:34","guid":{"rendered":"https:\/\/www.zameen.com\/blog\/?p=86796"},"modified":"2020-04-06T14:49:02","modified_gmt":"2020-04-06T14:49:02","slug":"amnesty-package","status":"publish","type":"post","link":"https:\/\/www.zameen.com\/blog\/amnesty-package.html","title":{"rendered":"Implications Of Giving Construction Sector An Industry Status"},"content":{"rendered":"\n

Amid the chaos that has\nengulfed the world and the country by the Covid-19 virus, PM Imran Khan\nannounced two relief packages for the country, one after the other. The second\none is for the real estate, or more appropriately the construction industry\nwhich has been given an industry status in Pakistan now. Members of Association\nof Builders and Developers (ABAD) have called it a historic move, and for good\nreason. This kind of package has never been introduced in Pakistan before.\nLet\u2019s review the important points of this package.<\/p>\n\n\n\n

Right off the bat, it makes sense why this\npackage has been introduced. It was needed to spur housing which has been one\nof the prominent promises made by PM Imran Khan. The Naya Pakistan Housing\nProgram (NPHP) which was to construct 5 million houses under the new regime,\nhas so far been hitting a lot of snags. It is hoped now that this special incentive package will\nbreathe life into that project once again.<\/p>\n\n\n\n

Secondly, the timing is\nalso important. Construction is one of the top employment sectors in the\ncountry for both skilled and unskilled workers. With the country tackling\nCovid-19 while locking down cities, this is a time when a lot of other\nindustries might be laying off factory workers, and many daily wagers are going\nout of work \u2014 not to mention, sliding further into poverty \u2014 construction will provide that\nemployment gap manifolds if it starts to spur. <\/p>\n\n\n\n

Construction also\ncontributes over 2 percent to the GDP while there is a massive growing gap in\nhousing in the country where demand has out sped existing supply, and created a\nmajor backlog in both urban and rural areas.<\/p>\n\n\n\n

\"there
graph showing contribution of construction in the GDP of Pakistan<\/figcaption><\/figure>\n\n\n\n

The biggest feature of\nthe package is that the investments that are coming into the construction\nindustry will not be required to prove their source of income starting April\n2020 up till 2022. This means, anyone with any kind of funds will be able to\nbuy land and start construction. This option is not available for plot traders\nor investors who are merely putting money into real estate, so it would keep\nspeculators at bay. <\/p>\n\n\n\n

Secondly, the package has waived off capital gains tax for the sale of existing houses while a fixed tax regime (with taxes collected on a per sq ft basis) will be introduced. Thirdly, withholding tax (WHT) on all building materials<\/a> will also be waived off other than steel and cement (sales tax will be reduced to 2%), meanwhile, there is an added tax-incentive for developers investing in projects for NPHP. The latter will only have to pay 10 percent of the fixed tax on construction if they are participating in NPHP. <\/p>\n\n\n\n

In order to support the sector, a Construction\nIndustry Development Board will be created. Valuation tables under Federal\nBoard of Revenue (FBR) will be updated to reflect market prices, while the\nholding period for constructed property will be reduced from 4 years to 3 years\nas was the case before 2019 (plot holding period remains the same at 8\nyears).   <\/p>\n\n\n\n

Lastly and most importantly, to tackle the demand side, mortgage will be offered at 6 percent for the construction of 100,000 low cost houses. This is lower than the current<\/a> House Building Finance Corporation (HBFC) available in the market which is at a fixed rate of 12 percent, though other major features of the aforementioned incentives are unclear. For instance, which banks will provide this product, what is the tenor length, if it is an FRM how will the subsidy keep coming through during the duration of the loan, given that the PTI government will likely not stay in power forever. More analyses and information are needed on this front to gauge whether this will in fact make housing affordable. <\/p>\n\n\n\n

Lastly, a civil procedures ordinance for ICT (and all provinces) will be prepared by the Ministry of Law and Justice. Moreover, special benches to tackle civil disputes with regard to the real estate and construction sector will also be formed. This is important for dispute resolution, though it puts into question the issue of foreclosure. A few weeks ago, the Lahore High Court ordered that banks will not be required to obtain a decree in selling mortgage properties<\/a> to recover defaulted loans. This is a good move and may help banks give mortgages more often, as they are typically wary of such loans due to the absence of strong foreclosure laws<\/a>. <\/p>\n\n\n\n

Preliminarily, this\npackage will lead to a lot of new construction in the country, particularly in\nhousing. It will create thousands of new jobs, and it will allow a productive\navenue for investors to put their money in. However, more details are needed to\nascertain its true impact while also thinking about the challenges that this\npackage might bring moving forward. <\/p>\n","protected":false},"excerpt":{"rendered":"

Amid the chaos that has engulfed the world and the country by the Covid-19 virus, PM Imran Khan announced two relief packages for the country, one after the other. The second one is for the real estate, or more appropriately the construction industry which has been given an industry status in Pakistan now. Members of Association of Builders and Developers (ABAD) have called it a historic move, and for good reason. This kind of package has never been introduced in Pakistan before. Let\u2019s review the important points of this package. Right off the bat, it makes sense why this package has been introduced. It was needed to spur housing which has been one of the prominent promises made by PM Imran Khan. The Naya Pakistan Housing Program (NPHP) which was to construct 5 million houses under the new regime, has so far been hitting a lot of snags. It is hoped now that this special incentive package will breathe life into that project once again. Secondly, the timing is also important. Construction is one of the top employment sectors in the country for both skilled and unskilled workers. With the country tackling Covid-19 while locking down cities, this is a…<\/p>\n","protected":false},"author":97,"featured_media":86800,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[29],"tags":[158,59937,43961,42928],"persona":[32409],"class_list":{"0":"post-86796","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-construction","8":"tag-construction-2","9":"tag-giving-construction-sector-an-industry-status","10":"tag-lob","11":"tag-zameen-research","12":"persona-constructiondevelopments","13":"cat-29-id"},"acf":[],"yoast_head":"\nImplications of Giving Construction Sector an Industry Status| Zameen Research<\/title>\n<meta name=\"description\" content=\"Overview of incentives provided to construction sector amid the coronavirus outbreak.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, 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