Real estate: Strict regulation of market need of the hour

Investment trend changing from long to short term

LAHORE: Pakistan’s real estate market is developing with every passing day. The emergence of new real estate groups is changing the investment trend from long to short term.

Though many cautious investors park their money in the construction of housing units or simply purchase completely built units to rent them out for income generation, still a majority prefers to invest in land for a better or sometimes quick return, experts say.

The charm of better and instant return has increased the flow of liquidity in the property market and most of the people are not hesitant to invest their savings. In the past few years, the unstable law and order situation and a high cost of doing business had forced many to sell their business and put money in the real estate market.

The diminishing agriculture income is another reason for many small and medium-sized landlords to sell rural land and go for pumping money into urban property.

Though there are some rules and regulations and state authorities to deal with matters pertaining to the sale and purchase of land, they are not helping to build investor confidence. Apart from some private housing schemes, fraud and land-grabbing is the norm and state laws fail to offer any relief and solution to the problem.

As a result, experts say, money keeps on circulating among few particular housing schemes, which are marketed as a safe haven for investment with better infrastructure and other facilities. Nevertheless, the developers of these private housing schemes often fail to hand over possession to the buyers on the announced date.

In many cases, the capital of investors remains blocked for a number of years with no hope of some government agency coming forward to help them.

According to experts, such delays are also noticed in developed economies, but they do not continue for years and their governments make amendments to the laws to protect investor interests. The example of Dubai can be easily given in this regard.

Real estate developers point out that the property market of Pakistan has been virtually stagnant since 2014, with the exception of some private housing societies that have done a wonderful business because of excessive interest of small and medium-sized investors, who have, of late, make real estate their bread and butter.

Price manipulation

For the past few years, the game of investment starts with the issuance of registration forms of a housing society, then these are converted into files and at later stages plot numbers are given after balloting. Between these processes, a lot of money flows as the investment is not huge and anyone with a few thousand rupees can enter the arena to fetch a handsome return.

Almost in every case, according to experts, the management of a housing society is accused of releasing registration forms or plot files more than the actual number of plots.

The ultimate beneficiaries are the real estate groups and some big investors. They work as a cartel to set high prices for the project’s popularity and at later stages they weaken the market and buy plots at much lower rates to fix the issue of excess files.

Every time this happens, but whenever the same group announces plan for developing another housing society, investors rush again to buy the property and the same old story is repeated. Perhaps, they have not many investment choices available.

Experts say there is a dire need to regulate and document the real estate market and put in place a strong check and balance mechanism as investor’s numbers are increasing due to rapid urbanisation. Only strict rules and an independent authority could put a check on such developers in order to force them to deliver what they have promised.

These measures will help in limiting the unexpected hike in land prices and slowly turn this scattered but an important segment of the economy into an organised sector. This will also help in boosting investor confidence and once things are streamlined, real estate could prove to be one of the most lucrative sectors both for investors and the government.

The writer is a staff correspondent

Published in The Express Tribune, August 10^th,  2015.

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