Small property investors put at mercy of big fish

Powerful regulatory body needed to look into such scams

LAHORE: With a vacuum left by a lack of regulatory bodies to look into real estate scams, especially those in private housing societies, big investors have joined hands with the builders to bamboozle small investors.

Initially, the small investors are lured with the promise of super-normal returns and later they are pushed into the corner when market price is forcefully driven down.

There has been a precipitous growth in private housing societies recently, especially in mega and second-tier cities. The purpose of these housing societies is, or so we are led to believe, to provide affordable housing units with all modern facilities under the concept of gated community. However, the other side of the picture is quite alarming.

In Pakistan, the establishment of a housing society is more of a measure to attract real estate investors for trading in the scheme rather than to actually focus on delivering the ready-to-build land or complete housing units. The success of such societies is now measured with the level of investments made by market forces before the actual map is released by the management of the society concerned.

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According to real estate experts, nearly every housing society, regardless of the fact that it is coming from a renowned or a new builder, will in practice, sell much more plot files or society forms than the actual landholding.

For instance, if a developer manages to buy 100 acres of land to start a new project, he actually sells initial booking forms for at least 500 acres, if not more in many cases. The builder normally develops some portions of the land to show people how the project would look once completed.

“The managements of housing societies normally choose few dealers to sell their units to exclusively. However, they also sell land to the general public directly,” said F-1 Properties Chief Executive Officer Waseem Tariq. They continue this practice to drive up or slow down the market until they collect a huge sum of money from the public, he said.

“First, they throw more than enough forms in the market and at later stages the society management buys back those forms at sharply lower rates, by driving down the market price, to balance their books.” The ultimate loser turns out to be the small investors, Tariq added.

“Unfortunately in Pakistan, like other sectors, the real estate sector also lacks standardisation and monitoring, which results in uneven distribution of profits and few big and influential investors managing to make big profits,” noted economist Dr Qais Aslam.

In a country where interest rates are low and inflation is high, profit margins on investments are considerably less, so people tend to go for real estate investment.

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In developed countries, the real estate contributes a major chunk to the economy, but not in Pakistan. Although things are improving, still a lot remains to be done. A powerful regulatory body to look into such scams is needed.

Published in The Express Tribune, September 23^rd, 2015.

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