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“Pakistan’s Supreme Court issues decree on value of immovable property”

September 21, 2015

Is this the end of the Boom and Bullish Cycle of Real Estate In Pakistan ?

As per “Daily Dawn” dated September 20,2015 ” SC issues decree on value of immovable property’ (Click to Read or Scroll Down).

This is a great move by Supreme Court of Pakistan that should give Pakistan’s economy much needed boost/edge in medium to long term if not withdrawn and fully implemented.

Documentation of economy is one of the major causes of Asset Price Inflation (Increases Currency in Circulation due to Generation of Nuisance Money), as undervalued Real Estate prices and Low Rentals. Investment in Stock Market and Dollarization has played havoc with our national economy pushing inflation at an extremely high level, forcing SBP to maintain higher interest rates policy that we saw in past decade.

Interestingly, it is no secret that real estate is a known hideout to park black/illegal money and whenever this issue is raised or discussed, all concerned authorities, of past and present respective governments distance itself and behaves like a novice putting all blame on Provincial governments.

Artificially created demand inflated the value of property and rental, which is only purchased to park illegal money. Asset price inflation is a big cause of economic distortion that had created imbalance in economy.

The real problem started popping up in 2007, as respective governments since then has been borrowing consistently to meet shortfall. When PPP government took over in 2008, by then government borrowings surpassed Rs 600 billion marks.

Unfortunately, due to poor fiscal policy/support and lack of pro growth policy, both revenue collection and export targets were never attained that left no other choice but to approach IMF.

IMF conditions are always very unfriendly and not compromising for the borrowing countries. It always demand extremely tight monetary policy, it does not provide enough space for spending and it simultaneously demand to curtail Fiscal Deficit.

In such a situation economy always hits low ebb, as it gets no room for stimulation. It is unable to generate enough funds from its own resource. Hence, government was/is compelled to borrow money from other sources to meet liquidity (Foreign exchange & Rupee) requirements.

Hence, due to liquidity shortfall, SBP is forced to print money to meet government demand. To avoid direct borrowing from Central Bank, the best suitable strategy is to borrow indirectly through banks, which is made possible/successful by conducting Open Market Operation (OMO injection Rs 1.269 Trillion) to provide liquidity to banks through injection, which makes banks participation easier in Bond Auction.

For common man’s interest, the secret of this type of transaction is that it does not directly hit the fiscal deficit number and hence, meets IMF requirement, but increases the Stock Size of bank Holding of Government Securities that annual inflates Deficit Financing (Rs 1.2 Estimated Target likely to increase Substantially) and inflate Domestic Debt figure (Rs 12.260 Trillion ) and ( External Rs 62.53 Trillion).

This is certainly most disadvantageous situation for country’s economy that discourages corporate lending. Since banks are easily able to obtain cheap sizable funding through SBP’s weekly OMO injection, then why would shy to invest in less risky government paper (T/bills, PIB & Sukuk, Total investments Rs 5.767 Trillion) that offers more than 275 basis point spread. In such a comfortable environment why would bank lend to more risky corporate sector that has clogged balance sheets. Banks are well aware of the factors behind Central Bank’s liquidity injection and government’s desperation to sell its paper.

This is why I keep saying that in present times to have a better grasp of economic trend, keep a close watch on piling debt number. The amount required for Deficit Financing and SBP’s Open Market Operation (OMO) figure, which will never take a breather unless both, revenue collection target is met and exports surges beyond its target (both are Fiscal Responsibility). With the ongoing culture of theft, corruption, protest and strikes it is next to impossible to fix the problem, unless legislative changes are made to put brakes on all such unnatural happenings.

The cost of decade old tight monetary policy has been exorbitant due to compounding effect (Around Rs 5 Trillion).  Because of extremely high interest Rate Environment, country’s domestic debt surged to Rs 12.260 Trillion (current) from Rs 2.4 Trillion (2007). In 2006-07 annual deficit financing was Rs 499 billion against Rs 1.325 Trillion.

This is why to manage deficit and avoid government borrowings, investment in Government Securities by bank surged from Rs 1.5 Trillion (2007) to Rs 5.767 Trillion (Current). I can safely say that this is the best indicator that depicts true picture of our economic woes that has plenty of linkages with all economic data.

Commercial Banks Advance/Deposit ratio is another good indicator that fell from 74 pct (FY 2006-07) to 50.61 pct (Current) tells the sad growth story of our economy.

This is why I consider this news report of Supreme Court Decree to implement valuation of immovable property a very important move/decision that could turn fate of Pakistan’s economy.

I consider Withholding Tax (WHT) a move in the right direction that should help in help in trapping Tax evaders and will tighten noose around the holders of Black Money that should ultimately help in reducing the menace of corruption and help to in raising Revenue collection.

This move may end of the Boom and Bullish Cycle of Real Estate.

EURO Bond Issuance suggests Pakistan Economy at Risk.

Watch Kamran Khan talking to Asad Rizvi

SC issues decree on value of immovable property


Published in Dawn, September 20th, 2015

ISLAMABAD: The Supreme Court has held that the date when an agreement is prepared and presented for registration in a matter relating to transfer of ownership of an immovable property, will be considered the material date for such a deed.

Thus, the stamp duty required to be paid/affixed will be according to the value of the property on the date when the agreement is prepared, says a judgment authored by Justice Qazi Faez Isa.

It is immaterial whether such a document has been prepared pursuant to a court decree in a suit for a specific performance in the case of a dispute, compelling the parties to execute a contract according to the precise terms agreed upon.

The apex court’s decision came on an appeal against two verdicts of the Lahore High Court (LHC), one from June 18, 2008 and another from March 19, 2012, which dealt with similar issues.

Overruling LHC judgement, the court says that stamp duty on property registration should be paid on the basis of its actual price

A three-judge bench, headed by former chief justice Jawwad S. Khawaja, had decided the matter on Aug 19, but the verdict was issued on the day the former chief justice retired.

Appeals against the high court order were filed by the Punjab government and some private parties.

The issue before the Supreme Court was to determine whether the value of the sale or conveyance deed or other documents regarding the transfer of ownership of a property, prepared pursuant to a court decree in a suit for specific performance, should be stamped on the basis of the sale consideration mentioned in the sale agreement/decree, or whether it should be stamped on the basis of the value of the immovable property when the document was presented for registration.

The appeals were filed against the insertion of Section 27A in the Stamp Act 1899, which deals with the value of immovable property. The amendment suggested that the value of the immovable property would be calculated according to the valuation table, notified by the district collector.

The purpose of bringing the amendment was to discourage the tendency, by buyers and sellers of property, to evade stamp duties by mentioning an amount lesser than the actual sale price paid or received. Thus, the district collectors were authorised under the law to notify valuation tables in respect of the immovable properties situated in their localities.

In the final conclusion, the Supreme Court held that the high court travelled beyond the provisions of the Stamp Act.

A document which is presented for registration is required to be stamped as per the stamp duty applicable on such date, the SC verdict held, adding that it makes no difference whether the document was voluntarily presented by the executants or had been prepared pursuant to a decree.

The registration officer cannot change the contents of the document which is presented for registration, but is only concerned with determining the applicable stamp duty on the date when the document is presented for registration, the judgment said.

The date the document is presented for registration is the material date and it is immaterial whether it has been prepared pursuant to a decree of a court, the judgment said adding that if the valuation of the immovable property had been notified pursuant to Section 27A of the Stamp Act, then the amount of the stamp duty should be calculated on the basis of the existing value of the property.

Published in Dawn, September 20th, 2015

EURO Bond Issuance suggests Pakistan Economy at Risk.

Watch Kamran Khan talking to Asad Rizvi

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