Builders Warn: Without Tax Cuts in FY26 Budget, Pakistan Faces $30 Billion Capital Flight to Gulf and Western Real Estate
Karachi, Pakistan — Pakistan’s real estate and construction industry could witness an unprecedented outflow of capital — projected to hit $30 billion by 2028 — unless the government rationalizes high transaction taxes in the upcoming FY26 federal budget, leading builders and developers warned this week.
According to the Association of Builders and Developers of Pakistan (ABAD), heavy taxation, political instability, and the lure of better returns abroad are forcing investors to shift money into property markets in the UAE, Saudi Arabia, the UK, and the US, with Dubai emerging as the top destination for Pakistani real estate investments.
Why Capital Flight is Rising
Builders point to several factors behind this accelerating capital flight:
- High property transaction taxes in Pakistan — reaching up to 40% transfer tax and 60% levy on developers earning above Rs150 billion.
- Economic and political instability, discouraging long-term domestic investment.
- More favorable tax environments abroad, particularly in the UAE and Saudi Arabia.
- Higher rental yields and returns in international real estate markets.
By 2022, Pakistanis had already invested $12 billion in the UAE, a figure expected to climb to $25 billion in 2025 and $30 billion by 2030, according to Federal Board of Revenue data cited by ABAD.
Construction Industry Under Pressure
Pakistan’s construction industry, which employs 10 million skilled and unskilled workers, is the second-largest employer after agriculture. Despite its importance, the sector’s contribution to GDP has shrunk from 6% to just 2.6% in four years, largely due to burdensome taxes and policy neglect.
“Due to the prevailing economic conditions, many developers have already moved their money abroad and are launching projects in the UAE, Saudi Arabia, and elsewhere,” said Mohammad Hassan Bakhshi, Chairman of ABAD.
He urged the government to reduce property transfer tax to 5–6%, in line with regional markets.
With a cash capitalization of Rs90 trillion ($319 billion), Pakistan’s construction industry is ten times larger than the Pakistan Stock Exchange (PSX), highlighting its untapped potential if supported by investor-friendly policies.
Housing Shortage: A Missed Opportunity
Despite a housing shortfall of 12 million units, Pakistan has yet to fully leverage its property market for economic growth. Industry leaders say that with the right incentives, the government can turn this deficit into an opportunity to generate jobs, stimulate construction, and attract overseas remittances.
Arshad Mehmood Awan, CEO of Homy Properties, noted that affordable housing initiatives combined with easier access to bank financing could unlock mass-scale residential development:
“We are expecting the government to devise a strategy in the new budget that makes housing finance more accessible, especially online.”
Industry Leaders Stay Guardedly Optimistic
Despite concerns, some stakeholders remain hopeful. Arif Habib, Chairman of Arif Habib Group, expressed optimism, noting that the government has already withdrawn excise duty and is considering a reduction in certain advance taxes.
He stressed that mortgage financing availability is key to reviving demand:
“With inflation at record lows, disposable incomes are recovering. The diaspora will also be encouraged to invest in Pakistan’s real estate market.”
Overseas Pakistanis: A Potential Lifeline
Overseas Pakistanis are projected to send $38 billion in remittances this year, with over half interested in investing in local real estate, according to ABAD. If policy reforms are introduced in the FY26 budget, this diaspora capital could flow back into Pakistan’s housing and property sector, offsetting the ongoing trend of capital flight.
Key Takeaways for FY26 Budget:
- Reduce property transfer tax to 5–6% to match regional benchmarks.
- Simplify and lower tax burden on builders and developers.
- Introduce mortgage-friendly policies to expand access to housing finance.
- Incentivize overseas Pakistanis to redirect investments into Pakistan.
