Valuation of Land in Pakistan

The real estate industry in Pakistan is crucial to the development and expansion of the economy. Investments and remittances are coming into the nation as a result of the better security situation, increase in inbound tourism, regulatory easing for the construction industry, and higher ranking on the ease of doing business index. In the first 10 months of the fiscal year, foreign remittances totalled USD 24.2 billion, up 29% over the same period last year (The News, 2021).

FDI inflows to Pakistan climbed from USD 1.7 billion in 2018 to USD 2.2 billion in 2019, according to UNCTAD’s 2020 World Investment Report (Santander, 2020). Realizing real estate’s full potential, however, is primarily dependent on land value and industry openness. Transparent business procedures may contribute to improvements in all of the aforementioned sectors as land values are employed in the financing, sales listings, investment research, property insurance, and taxes.

Land as a Tangible Asset

Unlike corporate or governmental bonds, land is a physical and clearly defined asset. Additionally, land may be improved through time to raise its usefulness and worth. The value of the residential market in Pakistan’s major cities increased by 85% between 2013 and 2018. (Wani, 2020). However, the lack of incentives for investors, stringent banking rules, and substantial taxes levied when transferring property keep firms and investors from investing in Pakistan’s real estate market. By artificially increasing land values during boom times, Pakistan’s land market is also vulnerable to speculation and the creation of real estate bubbles. Therefore, the majority of issues experienced by investors in Pakistan’s real estate market may be resolved with an accurate and transparent land assessment.

Land Valuation in Pakistan

As there is presently no official organisation to monitor developer operations, control real estate agents and brokers, or establish guidelines for best practices, Pakistan’s real estate sector lacks regulation. As a result, the system for valuing land is based on an outdated, deceptive mechanism that undervalues real estate. The introduction of capital gains tax slabs is part of the government’s effort to increase tax income from the real estate industry. However, until correct land values that represent the situation on the ground are carried out, no meaningful action in this respect may be done. In Pakistan, there are now three distinct tariffs for property. The Federal Board of Revenue (FBR) decides on the first, the District Commissioner (DC) decides on the second, and the market rate decides on the third. The market rate is nearly always much higher than the FBR or DC rate. As a result, the government continues to be unable to produce enough tax income from transactions carried out at market prices. Illegal or black money also seeps into the system when speculators raise market rates to benefit certain groups.

Determinants of Land Valuation

In Pakistan, the value of the land is often determined by a number of distinct criteria. The most important component in determining the value of land is its location. The physical and social qualities of the property determine the value obtained from the location. The makeup of the soil is another crucial component. The terrain is often levelled by compaction after being filled with dirt when new housing societies and commercial districts are created. This separated the land into two categories: filled land and solid ground. Additionally, as it is natural and already reinforced by the ground, solid terrain is more valuable than filled land, which necessitates the addition of foundations during building and raises the entire cost of construction (Goss, 2019). These two qualities might be categorised as part of the land’s physical features. The cost of the surrounding places is another important factor in determining socioeconomic attributes. These are referred to as comparable and must share traits with the property being assessed. Accessibility and land usage are significant factors in determining a site’s value (Qureshi, 2016). As a result, Pakistan’s real estate market valuation is similar to all other real estate markets throughout the world. The state appraisals are much below than the market value, which is the sole distinction. That makes it difficult for the real estate industry to collect taxes and other revenues, necessitating the need for a well-established system of land value.

Key Findings You Must Consider

Accurate and transparent land value is essential to realising the full potential of real estate. Given that data on all necessary indicators is reliably located, it is very simple to evaluate the value of the land since it is a physical, identifiable, and finite asset. As a consequence, in only five years, the property values in all of Pakistan’s main cities have increased by 85%. However, owing to many frauds and regulatory issues, international enterprises and investors are still reluctant to participate in Pakistan’s real estate market. An accurate and transparent land assessment might help change that.