The ‘PARKING’ Of Money In Real Estate

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(added few years ago!)
In 2001, my son purchased a100 sq. yds. plot in phase VIII, DHA, Karachi, from the chokidar of a DHA Club for Rs. 3.15 lacs. The next year he sold it for Rs. 4.50 lacs, thinking that he had made a reasonable profit. In June 2016, 100 sq. yds. plots in DHA phase VIII were quoted at Rs. 2 crore plus. I, as a DHA employee in officer’s grade, was given a 500 sq. yds plot in DHA City, Karachi, free of cost in 2010. I sold it the next year for Rs. 14.40 lacs. In the third week of June 2016, 500 sq. yds plots in different sectors of DHA City were quoted at prices ranging between Rs. 1.10 and 1.65 crore. Although the prices in DHAs rose exceptionally, the trend was generally visible in almost all localities of Karachi and throughout the country. Surprised with this trend of rising prices in real estate, I enquired from a friend who is a developer and builder about the phenomenon. His answer was short: “The parking of ill-gotten money is taking place.” It was for the first time that I came to know that money could also be parked.
The ‘PARKING’ Of Money In Real Estate
In the last week of June 2016, the federal government amended section 68 of the Income Tax Act 2001 to be effective from 1 July under which it changed the evaluation mechanism for immovable properties and enhanced the rate of taxation on their transfer. Now at the time of transfer the immovable properties are to be evaluated by the panels of evaluators appointed by the State Bank to determine the actual market value. The idea is to tax the black money parked in the real estate at heavy rate and with penalties in cases of concealment, accompanied with possible imprisonment. It is also claimed that this would divert the funds to industries and other healthy economic activities, creating job opportunities in the country. This development has come like a bombshell. Virtually the sale, purchase and transfer of immovable properties have come to a standstill. ABAD and other organizations/associations and interest groups are preparing their cases to plead with the government for withdrawal of the measures and to apprise it of the negative consequences of such abrupt and sweeping changes in the relevant laws of Income Tax. In principle, no one can disagree that the immovable properties should be taxed at market value. But first of all the questions arise: who are the people who have amassed this untaxed wealth? 
And secondly, why is there this need to ‘park’ the black money in real estate? It is more than obvious that real culprits are the corrupt politicians and bureaucrats and then businessmen and industrialists. The feudal lords enjoy benefits because there is only nominal tax on agricultural income. Instead of taking any measures to prevent the malpractice at source, the federal government has opted to take action that would choke the whole construction industry on which depend a hundred other industries. This may lead to massive dislocation and wide-spread unemployment in the country. If the government is serious about promotion of trade and commerce and development of industries, the first prerequisites are a thorough improvement in law and order situation and provision of necessary infrastructure, in particular electricity, gas and a network of roads for transportation.  At least the businessmen and industrialists never like to park their money if the avenues of other investments are open. The government has taken the measure in a hurry and it would almost certainly prove counter-productive. It may result in flight of capital from the country and formation of off-shore companies and opening of accounts in foreign banks. Reforms are always a slow and calculated process. Such measures of imposing taxes on real estate should be taken in periodic installments, spread over at least three to five years.
Blog post Written by Mahboob Popatia and you can visit the original article at
Tags : Parking, Money, Real, Estate, Charge, Government, Federal, Tx, DHA, Plots, Employee, Officer, Income

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