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Real estate in Karachi to stay unaffected despite budget proposals

LAHORE:Pakistan's real estate markets will continue to carry on with their business as usual, despite the fundamentally tumultuous proposals announced in the new budget.

The underlying reason for the seemingly nonchalant attitude is most likely how the system is designed - understating property values with no mechanism in place to correct it.

In the new budget, Finance Minister Ishaq Dar proposed innovative taxes for the real estate market, while scaling upwards the taxes already in place. For instance, a capital gains tax of 10% was proposed if the property is sold within five years of purchase. Meanwhile, withholding tax on sale of property was increased from 0.5% to 1% for filers and from 1% to 2% for non-filers. Similarly, withholding tax on purchase was increased from 1% to 2% for filers and 2% to 4% for non-filers.

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However, the new proposals will only take effect if the prices of property exceed Rs3 million. The price of the land, however, is not the same as the market value at which these properties are traded.

The value of land, in the on-going scenario where government officials have been unable to keep the official records updated, is estimated by means of [calculated] conjecture by the deputy commissioner's office (DC). This DC value has not been updated for much of the country for a number of years, and remains to be even considered for revision in a city like Karachi, according to property dealers.

Karachi

Despite many residential plots values hovering around tens of millions of rupees in Karachi, the DC value lists many of them in hundreds of thousands of rupees. The discrepancy means that Karachi remains largely unaffected from Ishaq Dar's proposal.

For the plots whose DC value exceeds Rs3 million, it would still be comparably little vis-à-vis the market price, so 1% or 2% of DC value pales in comparison to similar proportional taxes applied on their actual value.

"The proposed tax will not affect the Karachi market as it will be levied at DC rates which are much lower than the current land prices. The real estate market of Karachi is escalating rapidly and we are unable to satisfy our clientele's requirements due to short supply and massive demand," said Ajay Khatwani, a Karachi based agent while talking with Tribune.

Lahore, Punjab

The discrepancy between DC rates and market values extends to other cities as well. But recently a drive launched in Punjab, largely focused in Lahore, aims to revise the DC prices of several plots and bring them closer to the corresponding market values.

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This is primarily fuelling the ire of real estate agents who say that they'll have to pay significantly higher taxes, which adds to the cost of a transaction, deterring many investors from venturing into real estate transactions.

"Average DC value of DHA plots has been revised to from Rs2.2 million to Rs4 million recently, and we are expecting another hike that would probably push their DC value beyond Rs6 million," said Abdul Ghafoor, CEO of Pak Properties.

If the second wave of appreciation were to go through, it could increase withholding taxes on transactions by over 170%, and if the withholding taxes were to be revised upwards as per the new budget's proposal, the increase could exceed 440%.

Capital gains

Up till this point, much of the transaction cost taken into account consisted of withholding taxes, however, imposition of a 10% capital gains tax also remains to be configured.

Capital gain occurs when a real estate's value appreciates, so a capital gains tax tries to procure a cut of the profit from the real estate trader.

Currently when property is traded, land seller has to pay 0.5% capital gains tax if he's a filer and 1% for non-filer, given that the property is sold within two years of purchase. Furthermore, buyer pays advance income tax of 1% in case of filer, and 2% for non-filer. This means that for a hypothetical trade where Rs4 million property changes hands, which was revalue upwards from Rs2 million, these costs could add up to Rs100,000 for non-filer.

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Under the new regime, however, these costs would add up to Rs280,000, up by a precipitous 180%. Even this computation does not take into account withholding taxes, which could increase the aggregate cost to Rs520,000 from pre-budget cost of Rs220,000.

Not the end

However, that is not all. "These are so many other taxes, such as the federal taxes, provincial taxes and Society transfer fees....," said Waseem Tariq, CEO of F-1 Properties, a Lahore based agency.

On a similar note, Tariq warned that even imputing these costs would not provide a complete picture of the ballooning cost of a real estate transaction, since provincial taxes are expected to increase the costs further.

"Provinces are charging taxes in shape of 2% CVT and 3% stamp duty, and we are expecting the increase in these levies too in the new provincial budgets," Tariq said.

Conclusion

It remains to be seen whether such measures will prove to significantly damper the real estate market, but real estate dealers are already worried that it would significantly curb speculative trading, at least in the official channels.

"People will make alternate agreements to avoid heavy taxation, this will result in increased cases of fraud and strengthen the land mafias, already active to exploit the masses," Ghafoor added.

The writer is a staff correspondent

Published in The Express Tribune, June 13th, 2016.

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Hamptons Real Estate Could Rebound This Summer

Weve seen a slowdown in velocity of transactions, but the buying public is still there and there still interested -- theyre just being a little more cautious, said Zachary Vichinsky, co-founder of Bespoke Real Estate, a firm specializing in Hamptons real estate sales.



Unlike prices, real estate jobs not back at peak

Much as been made in recent weeks about the widely watched median selling price of an Orange County local home finally returning to its prerecession high.

Home prices are just one of many yardsticks of the real estate markets health. But the CoreLogic median hitting $645,000 in April the first time back at the previous boom times pinnacle of June 2007 certainly stirred memories of that easy-money era, the ensuing real estate markets collapse, and the eventual global recession.

But if you wanted an earlier warning signal, its worth remembering that employment in local property-related niches peaked nearly two years before the CoreLogic price benchmark topped out. Almost as meaningful, Orange Countys real estate employment high of 2005 has yet to be beaten.

I filled my trusty spreadsheet with state employment data to learn that combined employment in key real estate job categories tradesmen, builders, heavy construction, lending, supplies, agents and planners averaged 240,000 in the 12 months ended in April. Thats up 48,000 workers in five years.

Still, despite this 25 percent job increase, Orange County real state jobs this year run nearly 30,000 workers below the previous booms high in 2005.

What I found highly intriguing was that the employment surge to 2005s job peak and real estates current real estate hiring spree look eerily similar in scope and speed, minus one crucial factor. Local lenders have added workers in the last five years at half the pace of the staffing boost of 2000 to 2005.

The current lending shortfall both in terms of banker hires and the difficulties in gaining home loans may be a blessing of sorts, recalling how the bad mortgages in the 2000s distorted real estates upswing, then helped sink the economy.

Real estate paid a steep price for those mortgage misdeeds. A great example: Local property-related businesses lost roughly 1 in 4 of their workers in the ugly fallout of the Great Recession.

Conversely, real estate has certainly contributed to the broad economic revival, post-Great Recession, with approximately a quarter of all new Orange County jobs coming from the property-related niches tracked.

Heres how these real estate employment categories fared during the past five years and what those hiring patterns may say about the future for local properties:

TRADESMEN

Specialty trade contractors employ 65,000 in Orange County, and these workers are in real estates hottest jobs.

Builders must scramble to find plumbers, electricians, roofers, carpenters, masons and the like to work on their growing lists of projects.

The addition of nearly 19,000 tradesman positions in five years a 41 percent bump reflects both constructions strong rebound as well as the developers desire to transfer more work to subcontractors. And knowledgeable folks in the profession say the hiring pace has been slowed by a lack of skilled workers.

You cant find people to build our homes, says Scott Laurie, chief executive of Olson Homes in Seal Beach. Salaries are up and thats a big reason why (home) prices are rising.

But for those a bit unnerved by the construction workers recent renewed popularity, please note: This hiring spree which includes 13 percent growth in the past year, the fastest in at least 15 years leaves this employment niche some 5,000 jobs below its all-time high set in the last boom.

BUILDERS

Builders of homes and commercial projects a job niche employing 21,000 in Orange County have been busy, adding almost 6,000 workers since 2011, or 37 percent growth.

Its not much of a surprise after developers essentially took the previous five years off from creating new properties in the recessions wake. When a resurgent local economy filled empty spaces, new residential, retail and office complexes went from stalled to reality.

With this niches employment up 10 percent in the past year nearly double the pace of the previous four years its a good bet well see continued construction work for the foreseeable future.

At Olson Homes, sales are running six months ahead of schedule, so a 45-home project in Huntington Beach just sold out as a 37-home project in Westminster opens. Managing hot demand is extra challenging when there is a shortage of experienced managers.

Its hard to find talent people, Laurie says. Its not a very deep pool to choose from.

EARTH MOVERS

When you see the big earthmovers at work, real estate is ready to rumble.

This niche does the big work, both highway and other infrastructure contracts, as well as moving dirt to turn raw land into buildable lots.

Bosses in heavy construction have operated in the past year with 8,600 workers, staffing thats just below record-high levels.

There are more big projects, but there are generally just more projects as well, said Wendy Rogers, chief talent officer at LPA Inc. architects in Irvine.

Government contracts finally seem to be on the upswing, but the level of private-sector assignments is worth watching. Any potential real estate slowdown may be signaled by job cuts in this construction sector.

LENDERS

Lenders are the exception to hiring patterns of this recovery, which looks much like the ramp-up to the job peak of the previous decade.

Borrowing boomed with the recent homebuying revival, and cheap rates are motivating mortgage refinancing. That allowed local lenders to add 8,000 workers in five years to a total of 40,000, a 26 percent pop.

If you forgot, extremely aggressive lending a decade ago foolish loans that helped create a housing bubble that burst was pioneered by several Orange County institutions. That temporary business opportunity motivated local lenders to add 18,000 workers (twice the latest hiring spree) between 2000 and 2005.

Trent Brooks of commercial lender Bellwether Enterprise Real Estate Capital in Irvine says business is surging as big property owners seeking to buy new assets or refinance old ones.

Its not a good time to look for a job in the lending industry, is a great time, Brooks said

It may be twisted, reverse logic, but slower hiring at local home-loan lenders in recent years leaving the industry payroll down 13,000 from its bubble-fueled peak of decade ago actually may be good news.

Less risk-taking. Less employment. And (hopefully) fewer bad loans.

SUPPLY SHOPS

Build it and somebody will need supplies.

Jobs at building-supply shops averaging 10,000 in the past year have grown only modestly in the real estate rebound. The addition of 1,200 jobs (13 percent) in five years can be tied to industry becoming highly competitive, no matter if the merchant is serving home-remodeling consumers or building contractors.

Because of structural changes underway in this business including the influence of online merchants movements in this real estate job niche may not be very telling.

AGENTS

The business of selling and renting real estate employing 37,500 workers in the past year is nowhere as volatile as other property-related niches.

Consumers and corporations need roofs over their heads, in both good and bad economies. Still, modest 10 percent growth in the past five years leaves the category just 2,000 jobs short of its all-time high.

What should one make of slightly sluggish growth in employment at real estate sales and leasing companies in the past year just 1.3 percent year-over-year new jobs?

Probably not much. An acute shortage of properties to sell or vacant space to rent temporarily limits the opportunities for these workers. The high level of work done elsewhere in real estate trades should create the need for more transactions and greater demand for the sales and leasing businesses.

Commercial property brokers at Colliers International are so busy at their Irvine offices, as well as throughout the Western US, they are seeking extra office space to handle a growing staff.

The strength of this recovery, which is truly unique in many ways, means weve been recruiting many of the best known and most experienced experts and their teams across all the sectors of our industry, says Martin Pupil, Western region president for Colliers.

PLANNERS

Why has growth all but stopped in the past year at firms specializing in architectural and engineering services?

Its a big riddle, as the success of property planners is often tied to pending real estate activity.

These local firms added 5,000 workers in the last five years to amass staffs with 25,000 employees as demand has ballooned for new structures of all shapes and sizes.

LPAs Rogers is a bit surprised at this years sluggish job count, saying her firms 15 percent growth in business is creating new jobs in each of our integrated design disciplines in an extremely competitive market.

So, did local architects and engineers hire too fast and now are adjusting? Countywide staffing is just 1,000 people below the all-time high.

Or are future development plans dwindling, lowering demand for new planning and raising serious questions about the durability of the local real estate recovery?

Contact the writer: This email address is being protected from spambots. You need JavaScript enabled to view it.



NDP calls out BC government on real estate council reappointments

The BC NDP has slammed the governments reappointment of two members to the board of the Real Estate Council of BC

NDP housing critic David Eby called it a lost opportunity for change at a time when the regulatory agency established to oversee the conduct of BCs 22,000-plus licensed real estate agents is under intense scrutiny to show it is doing enough to protect public interest.

There are 17 members on the board, of which 13 are elected by agents across BC, one is chosen by the council as a strata owner representative, and three are appointed by the government. The terms of allthree government-appointed members expire at the end of June.

On Friday, the government announced Elana Mignosa will remain in her position until 2019, and Colette Squires will do so until 2018. Its not clear yet if the term of the third government-appointed member, Barbara Barry, will be renewed.

David Eby. Mark van Manen / PNG

"It is astounding that the premier would reappoint the same people who were sitting on this council's board when penalties were approved that are a slap on the wrist for rogue realtors ripping off British Columbians with impunity," said Eby in a statement.

The point is that both have been on the council during the duration of the biggest public relations scandal that realtors have had to deal with, said Eby in a phone interview. Why wouldnt they choose an independent expert as a provincial appointment?

The NDP said it will be writing to the premier to demand the replacement of all three provincially-appointed members with new, independent experts to restore some public confidence in the regulator and the real estate profession.

Said Eby: If I was a hard-working realtor and my reputation was taking a beating, Id want to have this done.

Finance ministryspokesman JamieEdwardson said there are looming changes that will bring new leadership and new regulationsto the real estate industry.

Government will need to appoint a new superintendent of real estate, and the council is about to receive the report from the Independent Advisory Group, which is expected to make important recommendations for the council and its role, he said. In this context, some stability and continuity on the board is also important.

Edwardson said two of the re-appointees are new to the board, having just been appointed in mid-2015, and typically board membersserve up to six years.

The third position is also open and we are looking for candidates, he said. The two council members who are being reappointed are well qualified and bring important skills and attributes to the board.

Public outrage from buyers, sellers and agents in the market alike has, in particular, been focused on New Coast Realty, a Richmond-based firm that claims it has over 400 agents.

In April, The Globe and Mail released an audio recording of Ze Ye Wu, New Coast Realtys owner, allegedly training sales teams to talk clients into selling homes for less so that his company could re-sell them quickly for more money and reap the gain.

After this, the council issued a wide set of conditions for the companys license. These included putting in place a new managing broker approved by the council. It was expected that this was to happen in early June.

No New Coast licenses have been suspended by the council. Homeowners continue to receive the companys many sales pamphlets in the mail, and new signs advertising homes for sale keep appearing -- some in markets not previously targeted by the company, including the Tri-Cities area. Agents associated with the company have also been promoting so-called exclusive listings via social media.

This endorsement of the councils failures to date is an outrage for allBritish Columbian families and honest realtors, but especially for thosepeople who have complained about fraud and found that the councilsdefinition of discipline was keep your license, and keep the proceeds, said Eby.

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