Land Valuation in Pakistan


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Introduction

Pakistan’s real estate sector holds immense value for the country’s economy and growth. The improved security situation, rise in inbound tourism, regulatory relaxations for the construction sector, and higher ranking on the ease of doing business index means that investments and remittances are flowing into the country. Foreign remittance reached USD 24.2 billion in the first ten months of the fiscal year, a growth rate of 29 per cent compared to the previous year (The News, 2021). According to UNCTAD’s 2020 World Investment Report, FDI inflows to Pakistan increased from USD 1.7 billion in 2018 to USD 2.2 billion in 2019 (Santander, 2020). However, realising the true potential of real estate largely depends on land valuation and transparency in the sector. Since land valuations are used in the financing, sales listings, investment analysis, property insurance, and taxation, transparent practices can help bring improvement in all the mentioned areas. Continue reading to understand land valuation practices in Pakistan.

 

Research Questions

  • What is land valuation?
  • How is land valuation practised in Pakistan?

 

Land as An Asset

Buy land as they are not making it anymore, Mark Twain once advised. The land is a tangible and easily definable asset compared to company bonds or government bonds. Land can also be developed over time to increase its utility and value. Major cities of Pakistan experienced an increase of 85 per cent in their residential market value between 2013 and 2018 (Wani, 2020). However, investors and businesses remain hesitant to invest in Pakistan’s real estate sector due to the absence of incentives for investors, strict regulations on banking transactions, and levying high taxes while transferring property. Pakistan’s land market is also susceptible to speculation and the formation of real estate bubbles by artificially inflating land prices in boom phases. Therefore, an accurate and transparent land valuation can alleviate most of the problems faced by investors in the real estate sector of Pakistan.

 

Land Valuation in Pakistan

Pakistan’s real estate market lacks regulation as currently, there is no government body to oversee activities of developers, regulate real estate agents and brokers, or set standards for best practices. Therefore, the land valuation system is based on the decades-old system that is manipulative and undervalued property. The government is trying to bring in additional tax revenue from the real estate sector by introducing slabs on capital gains tax. Still, no proper step can be taken in this regard unless accurate land valuations reflective of on-ground realities are not carried out. Currently, three different rates for a property exist in Pakistan. The first is decided by the Federal Board of Revenue (FBR), the second is determined by the District Commissioner (DC), and the third is the market rate. In almost all cases, the market rate is much higher than the FBR or DC rate. Therefore, the government remains unable to generate sufficient tax revenue according to transactions done on market rates. As speculators also inflate the market rates to give an advantage to particular groups, illegal or black money also penetrates the market.

Typically, the land is valued according to several different factors in Pakistan. Location is the most critical factor that decides how much land is worth. The value derived from the location is based on the physical and socioeconomic characteristics of the property. Another important factor is soil composition. As new housing societies and commercial areas are developed, the land is usually levelled by compaction after filling it with soil. This divided land into two categories, namely, solid ground and filled the land. Solid land is also more valuable as it is natural and fortified by the earth, whereas filled land must be strengthened by adding foundations during construction, increasing the overall costs (Goss, 2019). These two attributes can be considered among the physical characteristics of the land. In terms of the socioeconomic qualities, the price of surrounding areas is another primary consideration. These are referred to as comparables and must be similar in their characteristics to the land being evaluated. Accessibility and land use also play a vital role in deciding the value of a land (Qureshi, 2016). Therefore, like all other global real estate markets, the land is valued in the same way in Pakistan. The only difference is that state valuations are way below the market value. That hurts tax and revenue collection from the real estate sector, making the call for an established land valuation system necessary.

Conclusion

Realising the true potential of real estate largely depends on the accurate and transparent valuation of land. Being a tangible, definable, and scarce asset, it is relatively easy to calculate the land value, provided that data on all the required indicators is found accurately. As a result, all major cities of Pakistan have experienced an 85 per cent increase in their property value over just five years. But as investors and foreign businesses remain hesitant to invest in the real estate sector of Pakistan due to several malpractices and regulatory challenges, accurate and transparent land valuation can pave the way for reform in the real estate sector.

 

Key Takeaways

Foreign remittance reached USD 24.2 billion in the first ten months of the fiscal year, a growth rate of 29 per cent compared to the previous year.

According to UNCTAD’s 2020 World Investment Report, FDI inflows to Pakistan increased from USD 1.7 billion in 2018 to USD 2.2 billion in 2019.

Realising the true potential of real estate largely depends on land valuation and transparency in the sector.

The land is a tangible and easily definable asset compared to company bonds or government bonds. It can also be developed over time to increase its utility and value.

Major cities of Pakistan experienced an increase of 85 per cent in their residential market value between 2013 and 2018.

Investors and businesses remain hesitant to invest in Pakistan’s real estate sector due to the absence of incentives for investors, strict regulations on banking transactions, and levying high taxes while transferring property.

 




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