PTBP Web Desk
The real estate sector in Karachi has encountered significant turbulence following the Federal Board of Revenue’s (FBR) latest notification on the fair market values (FMVs) of immovable properties. Issued on October 29, 2024, under the reference SRO 1724(I)/2024, this notification has inadvertently led to a standstill in the registration of multi-story buildings, affecting both residential, commercial, and industrial sectors.
The crux of the issue lies in the absence of clear guidelines within the new notification for assessing the FMVs for properties with multiple floors. Previously, under the now-obsolete SRO 345(I)/2022, there were explicit formulas for valuation adjustments based on the number of floors. For instance, residential properties were valued with a 25% increase per additional floor, while commercial properties saw a 100% increment per floor. Industrial properties had their valuation calculated by considering the plot size along with the total covered area across all floors.
The latest notification from FBR does not continue this practice, leaving sub-registrars across Karachi in a state of confusion. This has resulted in a scenario where many sub-registrars have either ceased processing or outright refused to register sale deeds for multi-story structures. The Karachi Tax Bar Association (KTBA) has been vocal about these issues, addressing their concerns in a letter to the member operations at FBR.
According to the KTBA, “The current notification’s silence on multi-story valuations has created a void that’s open to individual interpretation.” This statement underscores the widespread confusion and potential for misinterpretation in how properties should now be valued. The association pointed out that this ambiguity is particularly detrimental for properties that serve mixed purposes, which had previously benefited from clear valuation directives.
The lack of clarity in the new guidelines not only disrupts the property market but also poses a significant risk to government revenue collection. With registrations on hold, there is a palpable fear that potential buyers might postpone or cancel their transactions, leading to a dip in tax revenue. The KTBA has urged the FBR to swiftly provide an explanation, ideally with practical examples, to clarify how each type of property should be valued under the new system. This, they argue, is crucial to resuming normal operations in the property registration process and to stabilize the market.
The broader implications of this situation are multifaceted. For one, investors and property developers are now in limbo, unable to proceed with their plans due to the uncertainty around property valuations. This could lead to a slowdown in new construction projects, which in turn might affect employment and economic growth in the real estate sector. Additionally, individuals looking to buy or sell properties are facing delays, which could have a ripple effect on personal financial planning and the broader housing market in Karachi.
In response to this crisis, stakeholders in the property industry, along with legal experts, are pressing for an immediate revision or clarification from the FBR. There’s a call for workshops or seminars where these new valuation methods could be explained in detail, possibly even reverting to or modifying the previous valuation methods to ensure continuity and clarity in the market.
This situation also highlights the need for better communication between regulatory bodies and those affected by their policies. The real estate market in Karachi, being a significant economic driver, requires precise and transparent regulations to function effectively. Without these, the path to recovery and growth could be fraught with unnecessary challenges.
As this issue unfolds, the property market in Karachi watches closely, hoping for swift action from the FBR to restore order and confidence in one of Pakistan’s most vibrant real estate scenes. The resolution of this matter will not only affect current transactions but also set a precedent for how future regulatory changes are implemented and communicated.
