Withholding tax collected from immovable property transactions climbed 57 percent in FY26, even as the government slashed advance tax on property purchases by half in the FY27 budget to encourage investment. The concession followed a marked surge in real estate prices, with plots in parts of Karachi reportedly multiplying in value within six months.
Analysts link the trend to reversed capital flight from the Gulf, particularly the UAE, as regional instability tied to the US-Iran conflict prompted funds once parked abroad to return.
Stronger remittance inflows and higher dollar liquidity from exchange companies have reinforced this shift, bolstering forex reserves and domestic liquidity.
However, concerns are mounting that this capital is settling into largely unproductive assets- vacant plots rather than industry or the stock market- which remains less attractive given its risk profile and a plateauing outlook.
Pakistan’s investment-to-GDP ratio continues to languish near record lows, with high taxation, weak industrial competitiveness, and regulatory hurdles cited as key deterrents to formal-sector investment. Some inflows reportedly still move through informal hundi-hawala channels, avoiding documentation altogether.
Officials are said to be exploring an investment vehicle for overseas Pakistanis to help finance $6.5 billion in public-private partnership projects, though critics argue such measures should have been introduced earlier.
A historical precedent is being cited: after Pakistan’s 1998 nuclear tests triggered a freeze on foreign currency accounts, banks led by HBL used incentive schemes to keep the resulting rupee liquidity within the formal banking system.
With regional tensions unresolved and capital inflows expected to persist, policymakers, the central bank, and commercial banks face renewed pressure to channel this liquidity into productive sectors or government securities before speculative pressures in real estate deepen further.
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