Gross and net rental yield after tax.
Net rental yield
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Gross yield
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Rent slab tax
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Net annual income
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Gross yield flatters, net yield tells the truth
Rental yield is the annual rent expressed as a percentage of what the property cost, and it is the single most useful number for comparing a flat against a savings certificate or a mutual fund. But the headline gross yield, rent divided by price, overstates what actually reaches you. Two taxes eat into it every year: the section 155 tax on the rent you collect, and the recurring annual property tax, the Urban Immovable Property Tax, charged on the assessed rental value. This calculator subtracts both before working out the net yield, so the percentage it returns is closer to the real return on your money than the gross figure a broker is likely to quote.
The three inputs and why ARV is its own box
You feed the tool three numbers: the property price, the annual rent, and the annual rental value used for property tax. The rent and the rental value are often similar, but they are not the same idea, which is why they have separate boxes. The rent is what your tenant pays you. The annual rental value is the figure the provincial excise and taxation office assesses for UIPT, and it can sit higher or lower than your actual rent. The rent drives both the gross yield and the section 155 rent tax, while the rental value drives only the property tax. The rates this calculator applies, a 5% charge on the rental value for property tax and the rising section 155 slab on rent, are set by the relevant authorities and revised through the annual budget, so confirm the current figures with the FBR and your provincial excise and taxation office.
A PKR 30 million flat earning PKR 1.2 million in rent
Run the defaults: a property bought for PKR 30,000,000, annual rent of PKR 1,200,000, and an assessed rental value also of PKR 1,200,000. Gross yield is the rent over the price. Then the section 155 tax on PKR 1,200,000 of rent and the 5% property tax on the rental value come off, leaving the net income that defines the net yield.
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The two bars compare the gross yield with the net yield once both taxes are taken out. The shrinkage shows the part of the return the gross figure quietly hides.
What a 3.55% net yield actually tells a buyer
A net yield in the mid-three-percent range is typical for residential property in the larger Pakistani cities, and it carries a blunt message: rent alone is a modest return, often below what a bank deposit or savings certificate pays before tax. Property buyers here are usually counting on capital appreciation, the rise in the property's value, to do the heavy lifting, with rent as a smaller supporting income. That is a perfectly valid strategy, but it should be a conscious one. If you are buying purely for income and the net yield is sitting at 3.55%, it is worth asking whether a lower-risk instrument would pay you more without the hassle of tenants, repairs, and vacancy.
The costs this tool leaves out on purpose
One judgement call to keep in mind: this calculator nets off the two taxes, but not the other leaks that a real landlord faces. Maintenance, a property manager's fee, insurance, and above all vacancy, the months a unit earns nothing between tenants, are not in the figure. A flat that is empty for two months of the year has already lost a sixth of its rent before any tax is counted. So treat the net yield here as the after-tax ceiling, the best case, and shade it down in your own head for the running costs and the gaps between tenants. The common mistake is to compare this clean number against a deposit rate and conclude property wins, when the lived-in return is lower still.
Should I use the purchase price or today's market value?
It depends on the question you are asking. Use the original purchase price to judge the return on the money you actually committed. Use the current market value to judge whether holding the property still makes sense today, because that is the capital you could free up by selling. The two can diverge a lot after a few years of price growth, and a property with a healthy yield on its old purchase price may show a thin yield against what it is worth now.
Does a higher rent always mean a better net yield?
Not proportionally, because of the rent slab. As rent climbs into the higher section 155 bands, a larger share of each additional rupee is taxed away, so the net yield rises more slowly than the gross. Pushing rent up is still worthwhile, but do not assume a 20% rent increase lifts your net yield by the same 20%; the progressive tax quietly skims more off the top as the rent grows.