REAL ESTATE – An Emerging Sector in Pakistan
Today, the word ‘real estate’ has become very common. You may have listened it many times a day. Anyone turning on the TV, surfing the web, or on billboards will have noticed the vast number of advertisements for real estate projects in Pakistan. The development of this sector, particular in Pakistan, has shown exponential growth over the years. Developers are building the most incredible new projects with sprawling infrastructure and exceptional designs. To cut short, real estate has become an emerging sector in Pakistan.
Hindrances which Shrunk the Progress of Real Estate Sector in Pakistan
Although real estate sector has shown a significant growth in Pakistan, there is still plenty of room for improvement. Today, investing in Pakistan seems risky. Why is it so? Why customers find it elusive to make a good purchase in this market? This question has multiple-cum-logical answers. Factually speaking, despite strong domestic demand, Pakistan currently ranks 121st out of 127 countries ranked in the International Property Rights Index. Also, Pakistan is ranked as having Low Transparency and has an overall rank of 88 in Jones Lang Lasalle’s Global Real Estate Transparency Index.
What are the reasons for these rankings? Firstly, the negative perception of Pakistan brought about as a result of the prevailing security situation affects Pakistan in many areas, with real estate being no exception. However, that does not fully explain such a low rating, especially as the security situation has improved immeasurably over the last 5 years, and it is apparent that other factors prevail.
Besides security, what are other factors which hamper the growth of real estate sector in Pakistan? Real estate is not a well-regulated market in Pakistan; it does not offer sufficient legal protection for investors. This is an important consideration, particularly for foreign investors (including overseas Pakistanis). According to a report, over 30% of overseas look to invest back in Pakistan, however, only 5% out of them get it done.
Alongside security concerns and not properly regularizing real estate market, high inflation rate, rising interest rates, inexperienced management, developers’ greed, are some other grievances which add fuel to fire and further hamper the growth of real estate sector in Pakistan. In short, issues are many, but the purpose of this write up is not to count problems, but to give valuable suggestions to make real-time improvements in this sector. Because, Pakistan’s real estate market will remain flawed if it fails to provide needful protection through solid steps as all investors now expect their interests to be protected by law, just like in other markets like Dubai, India, and Malaysia. Before giving suggestions, it is pertinent to first shed some light on past efforts made by Government of Pakistan.
Efforts made by Government of Pakistan to Overcome above Mentioned Challenges:
Over the last 5 years, there has been a steady stream of regulations issued by the Government of Pakistan and local authorities such as Lahore Development Authority (LDA) to protect investors and regulate the market. The LDA, for instance, has issued detailed rules regarding the approval of private housing societies. LDA is a municipal authority that it is empowered to enforce planning and development rules – not act as a real estate regulator.
Also, the FBR has issued advice to investors on how to invest safely. These initiatives are laudable and a significant improvement, but real estate scandals, culture of red tapism in institutions, and complexities in procedures hamper cannot fully ensure that the investor’s stakes are protected. Instead of relying on well-intentioned location-specific and non-binding advice, there is a dire need of real estate regulators at the federal and provincial real estate regulators with wide ranging powers both to protect investors and streamline the approval process for developers and minimize red-tape.
Possible Solution for the Prosperity of Pakistan’s Real Estate Sector – Through the lens of an Urban Planner
All mentioned steps taken by GOP can be considered as an encouraging start – but this is not the solution. Then what is the solution? Belonging to urban planning profession and serving in the real estate market as an employee of ZAITOON for last three years, I would suggest the following steps, as a minimum, in order of priority and practicality.
- Establish an industry regulator (both on provincial and federal levels) with widespread powers to issue and implement rules, hear complaints and regulate the overall market
- All projects and developers should be registered with the regulator for transparency and compliance
- Deposit all investor monies into escrow accounts (An escrow is a contractual arrangement in which a third party receives and disburses money or property for the primary transacting parties) managed by approved financial institutions to be utilized solely for project development
- Streamlining approvals for developers to create a better development and planning regime
- New survey regulations which provide clarity on how property is located, measured and purchased
- Regulating real estate brokers/agents in order to uplift the profession and prevent corrupt and unfair practices
- Wholesale reform and implementation of a computerised and GPS-based land title registration system (ArcGIS is a good tool to get this job done). The biggest impediment to any real estate market is uncertainty and that will remain unless land records have been scrutinised and reformed in accordance with international standards.
- The rules regarding land acquisition and ownership needs to be codified and enforced by the real estate regulator. It simply should not happen that a huge development can be built in the largest city in the country to serve capitalists/real estate developers rather than serving the community. Punjab Local Government is working in this direction by making Side Development Zones (SDZs) to make sure that development for next eight must be according to trends of the city, but not according to will of developers. Town Planner, who are working in the formulation of these plans must do their job honestly rather than sell their conscience in the hands of private developers, for short term gain, whose ultimate driver is maximization of profit. After the formulation of these plans, municipal Authorities must ensure the execution of these plans in every possible way
These reforms must be implemented at local, provincial, and federal level as the Pakistani investors deserve the same level of protection that other investors have in other markets. Developers should develop, sell, and market property on the basis of established rules. If state implements reforms of this nature, real estate market will grow and flourish throughout Pakistan. Furthermore, these reforms will also ensure that real estate market is not a money-making-factory for private developers but serving the community the way it supposed to be.