The federal budget for fiscal year 2025-26, unveiled on June 10, 2025, marks a pivotal moment for Pakistan’s real estate sector. With a series of targeted tax reliefs, incentives, and regulatory reforms, the government aims to revive the property market, stimulate housing demand, and promote transparency. This article provides a professional analysis of the budget’s key measures affecting real estate, their potential impact, and what stakeholders can expect moving forward.

Key Tax Reliefs and Incentives for Real Estate Buyers

One of the budget’s most significant announcements is the reduction in withholding tax (WHT) on property purchases across various slabs, designed to lower transaction costs and encourage investment:

• WHT reduced from 4% to 2.5% for the highest slab
• From 3.5% to 2% for the mid-slab
• From 3% to 1.5% for the lowest slab

This step will directly benefit buyers by reducing upfront tax burdens and is expected to stimulate property transactions.

Additionally, the government has abolished the 7% Federal Excise Duty (FED) on the transfer of commercial properties, plots, and houses—a tax introduced last year that had dampened market activity. The removal of FED is a welcome relief for both developers and buyers, making property deals more financially viable.

Stamp duty in Islamabad, a major cost component for property buyers, has been slashed from 4% to just 1%. This reduction is anticipated to boost real estate activity in the capital and may encourage other provinces to follow suit.

Encouraging Homeownership and Mortgage Financing

The budget introduces a tax credit for houses up to 10 marlas (approximately 250 square yards) and flats up to 2,000 square feet, signaling a government push to make homeownership more accessible, especially for the middle class.

Moreover, the government plans to promote mortgage financing as part of its broader housing policy. This initiative could unlock liquidity for developers and buyers alike, potentially increasing construction activity and facilitating easier home loans.

Taxation on Sellers and Non-Filers: A Mixed Signal

While buyers enjoy tax relief, sellers face increased withholding tax rates:

• From 3% to 4.5% on property transactions up to Rs 50 million
• 5% on transactions between Rs 50 million and Rs 100 million
• 5.5% on deals exceeding Rs 100 million
  

This rise aims to broaden the tax base but has drawn criticism from industry experts who argue that higher seller taxes may slow market momentum.

Furthermore, the budget imposes restrictions on non-filers, barring them from buying property, vehicles, or opening bank accounts starting July 1, 2025. While this measure aims to increase tax compliance and transparency, it could temporarily dampen real estate transactions, especially in informal segments.

Corporate Sector and Broader Economic Context

The budget also reduces the super tax rate by 0.5% for companies earning between Rs 200 million and Rs 500 million annually. This relief is expected to improve liquidity in the corporate sector, indirectly benefiting real estate investments.

The government’s overall fiscal strategy includes austerity measures and a focus on reducing the budget deficit, which could stabilize macroeconomic conditions and create a conducive environment for real estate growth.

What This Means for Real Estate Stakeholders

• Buyers: Lower taxes and incentives make purchasing property more affordable, especially for middle-income groups seeking smaller homes or flats.
• Sellers and Investors: Increased seller taxes may require recalibration of pricing strategies; transparency measures will demand stricter compliance.
• Developers and Builders: Abolition of FED and promotion of mortgage financing could stimulate new projects and ease funding constraints.
• Government: The budget reflects a balancing act between tax revenue generation and sectoral support, with a clear intent to formalize the market and curb benami transactions.