Real Estate Pakistan

Real Estate Related Laws of Pakistan:

This overview explains procedure for sale/purchase of real estate in Pakistan, Gift of real estate in Pakistan, lease of real estate in Pakistan, mortgage of real estate in Pakistan and taxation of gains from real estate in Pakistan, taxation of real estate in Pakistan and set up of real estate investment trusts in Pakistan. These brief notes are for general guidance only and should not be taken as a substitute for thorough and professional legal advice.

Real Estate Related Laws of Pakistan

Types of Real Estate in Pakistan:

Sale of Real Estate in Pakistan

Sale of real estate in Pakistan normally takes place through a title document known as a Sale Deed, except in certain cases e.g. purchase of real estate in Defence Housing Authority (DHA) or in a housing society where sale deed is not executed for transfer of title in real estate and an allotment letter/transfer letter from the authority or the society, as the case may be, is deemed to be the title document. Some people, before execution of the sale deed, may opt to execute an agreement to sell. However, such agreement to sell does not transfer title to a property in favour of the vendee. It, nevertheless, does create a right in favour of the vendee, in case the vendor refuses to honour the terms and conditions of the agreement, to seek specific enforcement of the agreement to sell. Title in an immovable property is only deemed to transfer once such Sale Deed or title document has been executed. A sale deed must be affixed with requisite stamp duty and it must be registered with the relevant sub-registrar. After registration of the Sale Deed with the sub-registrar it must be ensured that a mutation of such sale is entered in the register of mutations kept and maintained by the patwari.

Purchase of Real Estate in Pakistan:

Before purchasing real estate in Pakistan, a complete and thorough search in respect of title of the seller to the real estate must be carried out. A general practice is to investigate title of the current vendor and any previous owner(s) for the last 20 years. Original title document in favour of the vendor must be obtained alongwith other relevant documents including mutation in favour of the vendor, a fresh copy of fard, aks shajra and NOC/NEC as the case may be.

If the vendor is selling the property in the capacity of an attorney of the owner then it must be ensured that the power of attorney is affixed with appropriate stamp duty and it has been duly registered with the relevant sub-registrar. If possible, contact should be made with the owner(s) of the property and authenticity of the power of attorney must be confirmed. A holder of a forged and fabricated power of attorney may not be able to transfer a valid title in an immovable property to a third party.

Non-resident Pakistanis, overseas Pakistanis and foreigners may also purchase immovable property in Pakistan. Their presence in Pakistan at the time of execution of the title document is not necessary.

Lease/Renting out of Real Estate in Pakistan:

Landlord's Point of View:

Landlord must ensure that lease of an immovable property is executed in writing. Lease of immovable property for a period of less than a year does not require compulsory registration. However, lease of immovable property for a period of more than a year must be registered.

If the tenant refuses to pay rent, or for any other reason as stated in the lease agreement and allowed under the law, the landlord may terminate the lease. If the tenant refuses to vacate the premises the landlord may file an ejectment petition before the relevant rent controller.

Tenant's Point of View:

Tenant must ensure that he makes payment of the rent either through a crossed cheque, or where payment is made through some other mode, then a receipt must be obtained from the landlord. In case the landlord unlawfully or unjustifiably attempts to evict the tenant, the tenant may file a petition before rent controller in addition to availing other legal remedies as advised by his counsel.

Gift of Real Estate in Pakistan:

Gift of real estate in Pakistan must be made in writing. There is, however, a qualification to this general rule in case of a Muhammaden. A Muhammaden may make an oral gift of an immovable property. Although allowed under law, it is not recommended to make oral gifts of immovable property because it may become difficult to prove an oral gift. Where a gift deed is executed, it must be affixed with appropriate stamp duty and it must be registered.

An oral gift, in case of a Muhammaden, takes effect if all three of these under mentioned conditions are satisfied:

Mortgage of Real Estate in Pakistan:

Legal Mortgage

A legal mortgage in respect of an immobile property may be created after execution of a mortgage deed. A mortgage deed must be affixed with appropriate stamp duty and it must be registered with the relevant sub-registrar.

Equitable Mortgage:

An equitable mortgage in respect of an immovable property may be created simply by deposit of original title documents e.g. sale deed, allotment letter, etc., with the mortgagor. It is not required to be registered, however, a general practice is to get a lien marked in respect of such mortgage.

Real Estate Taxation in Pakistan:

Taxation of Gains from Real Estate in Pakistan:

The Constitution excludes legislation on taxation of capital gains from the purview of the federal government. The income tax law has also been harmonized with these constitutional provisions by excluding the immovable property from the definition of capital asset, whose gain is liable to tax.

Despite this, profits on some transactions concerning immovable property is taxable under the income tax law e.g. disposal of property acquired as a stock in trade or with commercial intent to make profit. However, gains realized on disposal of immovable property transferred as a consequence of family inheritance, gifts or without commercial motives, or the property held as a business capital asset are exempt.

Capital Value Tax on Real Estate Related Transactions in Pakistan:

A Capital value tax at the rate of 2 percent of recorded value has been levied vide Finance Act, 2006. This is applicable in urban areas for residential property exceeding an area of one kanal and in case of commercial properties without any threshold of land area or size of the property. However, where the value of such property is not recorded, the CVT is payable at Rs. 50 per square yard of land area. All transfers falling under the scope of purchase, gift, exchange, surrender, power of attorney and relinquishing the rights have been subjected to the capital value tax. However, transactions between spouses, parents, grand parents, brothers and sisters through gift and inheritance have been excluded from its purview.

Establishment of Real Estate Investment Trust in Pakistan:

The concept of Real Estate Investment Trust has recently been introduced in Pakistan as an incentive for real estate investment in Pakistan. Any income of such trust is exempted from tax, subject to the condition that not less than 90 percent of its profit of the year is distributed amongst the unit holders.