INP-WealthPk

Major tax relief in budget to boost investment in real estate sector

June 26, 2025

Ayesha Saba

The government’s new tax relief package for the real estate sector is designed to stimulate investment by reducing withholding taxes and providing targeted incentives for developers. While the measures are expected to enhance market liquidity and attract both local and foreign investors, experts emphasize that their long-term effectiveness will depend on transparent implementation, stringent oversight, and safeguards against speculative misuse.

Talking to WealthPK, Saeed Khalid, a real estate policy advisor, said real estate has historically been a key driver of the economy, contributing significantly to GDP and employment. However, in recent years, the sector has faced multiple challenges, including high taxation, regulatory hurdles, and a lack of investor confidence due to inconsistent policies.

The new tax relief package is seen as an attempt to reverse this trend by lowering transaction costs and encouraging genuine investment rather than short-term speculation. “There is a need for institutional oversight. Our real estate market has, for decades, served as a haven for undocumented wealth. These measures must be accompanied by stronger regulatory oversight to ensure the benefits reach the intended stakeholders.

Past experiences have shown that tax amnesties and incentives can lead to artificial price hikes and money laundering if not properly monitored,” he said. “Transparency in property valuations, stricter documentation requirements, and the digitization of land records will be crucial in preventing misuse. The government has emphasized its commitment to monitoring market trends closely, but analysts stress that independent oversight bodies should be involved to maintain credibility,” he maintained.

Khalid remains optimistic about the broader macroeconomic implications of the relief package. By reducing the cost of formal investment in property, the government aims to channel idle capital into more productive ventures. “The construction and real estate sectors have a strong multiplier effect on the economy. Increased investment in these sectors drives demand across numerous industries—from manufacturing to retail—offering a short-term boost to GDP and a long-term pathway to sustainable urban development,” he viewed.

In the budget, the government has reduced withholding tax (WHT) rates. The three-tier WHT structure has been revised downward, with rates cut from 4% to 2.5%, 3.5% to 2%, and 3% to 1.5% across different transaction slabs. Furthermore, the government has completely abolished the Federal Excise Duty (FED) on the transfer of real estate assets.

Additionally, stamp duty in Islamabad has been drastically reduced—from 4% to just 1%. The package also focuses on affordable housing through new tax-free credits for houses up to 10 marlas (~2,250 sq ft) and flats up to 2,000 sq ft. These are supported by newly launched mortgage financing schemes aimed at increasing homeownership among middle-income families.

Credit: INP-WealthPk