Karachi, April 30, 2025 – The State Bank of Pakistan (SBP) has revealed that increased taxation on property transactions has significantly impacted housing finance, dampening the demand for home-building loans despite a reduction in borrowing costs.
In its latest State of Pakistan’s Economy report for the first half of FY25, the SBP pointed out that the property market has come under pressure due to elevated construction costs and the imposition of higher taxes on property transactions. This double burden, the SBP noted, has made potential homeowners more hesitant to borrow, leading to subdued growth in housing finance.
The report highlighted that while borrowing rates have eased, the anticipated boost in demand for housing loans has not materialized. The SBP specifically cited increased taxes on property sales and transfers as a key reason for the slowdown in property-related borrowing. Additionally, rising prices of construction materials have further discouraged new home construction and property development.
Despite the drag in the property segment, overall consumer financing showed a recovery during the period. According to the SBP, consumer loans grew by Rs 66 billion in H1-FY25, a sharp turnaround from the net retirement of Rs 42 billion recorded in the same period last year. This recovery was primarily fueled by a surge in personal loans, as banks aimed to meet their Advances-to-Deposits Ratio (ADR) requirements.
Auto loans also saw a modest uptick, marking a reversal after two years of decline. Furthermore, credit card usage maintained its upward trajectory, continuing the steady growth observed in recent years.
The SBP emphasized that while segments like auto financing and personal loans have shown signs of resilience, the property sector remains under strain. Unless tax policies on property transactions are reviewed or revised, the SBP warns that housing finance could remain sluggish, potentially hindering broader growth in the real estate and construction sectors.
With the property market playing a critical role in economic expansion and job creation, the SBP’s findings highlight the need for a balanced approach to taxation that supports both government revenue goals and sustainable property sector development.