The imposition of two percent Capital Value Tax (CVT) on the sale/purchase of property ranging from 500 sq. yards and above has attracted mixed reaction from the concerned circles.
The size of the taxable property has been brought down to a minimum of 500 sq. yards for the CVT in the budget FY 2006-07, as the levy, earlier was applicable on property ranging from 1000 sq. yards and above only. Moreover, five percent tax has also been imposed on the income of the rental property.
One property dealer, Nafees Ahmed Khan of Arfeen Estates welcoming the decision said that this would help in stabilising the inflationary prices of plots and added this would also help curb speculation based trading.
He said that this would bring the prices of property down and ultimately benefit the general public. Elaborating, he said that the imposition of CVT would discourage the hardcore investors who would opt towards some other but more profitable opportunities leaving the real estate market for genuine buyers. This would not only check the monopoly like situation in the market but also bring down or at least stabilise the prices.
The moving out of hardcore investors who had been keeping tens of plots to sell in the bullish market would negatively affect the demand limiting the number of buyers and, as the rule of demand operates ie decline in demand would bring down prices.
Experts on the other hand have strongly opposed this step opining that this levy of two percent CVT on property of 500 sq. yards and above would drag the focus of the investors towards property of lesser magnitude. This switch, according to them, would trigger inflationary trend in the trading of property lower than 500 sq. yards. The monopoly would be diverted towards the lower magnitude plots of 80, 120, 240 and 400 sq. yards, as a result these would also move out of the reach of the common men.
Munir Sultan, Chairman KCCI Standing Committee on Housing and Construction has said that the step would have no affect or a very nominal one. When asked if this would help in reducing the backlog of the housing units required, he said this would not serve the purpose and other steps would be required. He suggested that the banks and leasing institutions should encourage house construction loans instead of house purchasing loans. It may be mentioned here that as many as 6.7 million units are required per annum in the country and with the present population growth rate this rate would hit 10 million within the next five years.
It has also been learnt that the value of plots in the posh areas of Karachi followed a downward trend even before the announcement of budget 2006-07.
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