Positive signals for housing sector in FY26 budget

June 13, 2025 (MLN): The Federal Budget FY26 has brought a mixed bag of implications for the real estate and construction sectors, with a generally positive outlook.

Key relief measures include the removal of FED and a reduction in advance tax on the purchase of immovable property, which lowers upfront costs and enhances affordability, according to the Federal Budget FY26 report by Savills.

A housing subsidy of Rs5 billion has been proposed, while tax credits for interest on personal residences covering homes up to 2,500 sq ft or flats up to 2,000 sq ft are aimed at stimulating mortgage uptake and supporting growth in middle- and low-income housing segments.

However, the increase in advance tax on the sale of property and limitations on non-filers are likely to deter transactions, particularly within the undocumented sector.

Advance tax rates on the purchase of immovable property have been revised downward: from 3.0% to 1.5% for properties below Rs50 million, 3.5% to 2.0% for Rs50–100m, and 4.0% to 2.5% for above Rs100m.

Conversely, advance tax on sale or transfer has increased: from 3.0% to 4.5% (below 50 million), 3.5% to 5.0% (50–100m), and 4.0% to 5.5% (above 100m).

In Islamabad, stamp duty has been slashed from 4% to 1%.

The current government has tabled its second budget with a strong commitment to fiscal consolidation.

The budget outlay is set at Rs17.57 trillion, aligned with the revised Rs17.25tr outlay for FY25, and reduced to 13.6% of GDP from 15.0% in FY25 under IMF oversight.

Revenues are targeted at Rs19.28tr, with FBR expected to collect Rs14,13bn and non-tax revenues projected at Rs5.147tr.

Net federal revenues post-provincial transfers will stand at Rs11.07tr.

Total expenditure is projected at Rs17.57tr, resulting in a budget deficit of Rs6.45tr or 3.9% of GDP, while the primary balance is expected to be a surplus of Rs3.17tr or 2.4% of GDP.

FBR’s tax collection as a percentage of GDP is projected at 10.9%.

Key tax measures include the elimination of the GST exemption for FATA/PATA through the introduction of a new 10% GST, a rise in tax on interest income from 15% to 20%, and the imposition of GST on solar panel imports.

Additionally, the budget proposes an increase in withholding tax on cash withdrawals by non-filers from 0.6% to 0.8%, along with the introduction of a Carbon Levy and an EV Adaptation Levy.

Furthermore, changes in withholding taxes on specified services have been proposed.

On the relief side, salaries and pensions of federal employees will be increased by 10% and 7–10% respectively, tax relief will be provided to the salaried class, the mortgage tax credit will be restored, and a 0.5% reduction in super tax will be implemented.

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