Impact of black money on real estate sector
Black money is one that is earned from irregular or illegal means. But according to the government, money that is received in cash through underground economic activities, and is not taxes, is the black money.
Black money in Pakistan
According to the government officials, black money in Pakistan is approximately 20-25% of the real economy. This huge amount of economy is untaxed and is the shadow economy. According to Senator Haroon Akhtar Khan, Special Assistant to Prime Minster on Revenue, such large amount of money cannot be allowed to remain unchecked and untaxed. According to him, government will do everything to eliminate black money in Pakistan.
Why black money in reality sector?
Black money and real estate sector has long history of love affair. In Pakistan and many other countries, real estate sector was one of the best sources to whiten the black money. But since 1 July 2016, FBR is asking the source of income and this has flushed out black money from Pakistan real estate sector.
Reality sector with influx of black money
Property prices are dictated by the purchasing power of buyers. When people have more buying power prices does increase and vice versa. But when black money enters the reality sectors, it massively increase the property prices and in most cases way out of the affordability of genuine buyers. Transactions and earnings of realtors shrink due to expensive and unaffordable property prices.
Reality sector without black money
Black money curbing has always positive impact on property markets. Firstly, without black money, property prices fall. Secondly, it makes properties affordable for masses. Thirdly, real estate transactions increase as people start buying properties. Fourthly, realtors get good business due to increase in real estate transactions.
Impact of curbing black money in India
India has recently started curbing black money. They have banned old 500 and 2000 Indian Rupee Bills. This has effectively controlled the black money circulation in India. But for reality sector this exercise has proved as death blow. Property prices in India are crashing like meteorites. Property prices in India had been popped up by black money. But now without black money, property prices in India are heading for 50% crash.
Impact of curbing black money in Pakistan
Impact since 1 July 2016
Pakistan is way ahead of India to curb the black money. India has negative impact on its economy due to demonetization policy, but Pakistan has controlled black money and our economy is booming as evident from STOCKS. Pakistani government knows that 7 trillion PKR has been illegally parked in reality sector. The government just empowered FBR to ask the source of income. This has effectively curbed the influx of black money in reality sector.
Impact after announcing amnesty scheme
After protest of realtors and real estate stake holders, government has recently proposed amnesty scheme for real estate sector. Amnesty scheme is for transactions before 1 July 2016, as many people were caught off guard. This amnesty scheme will not increase property prices as new transactions will be scrutinized by FBR to curb black money. So without black money, prices are falling and will keep falling to the point where people with white money can afford to buy. This is another intelligent move by Pakistani government to cool down realtors and to collect more revenue.