Anyone surfing the web, turning on the TV, or driving by myriads of billboards will have noticed a large number of advertisements for real estate projects in Pakistan. The sale and development of real estate sector dominate the marketing and advertising landscape of Pakistan. In particular, there is an exponential increase in the sale of units in under-construction real estate projects throughout Pakistan and the means by which they are being sold. Nowadays, developers are selling lifestyles and dreams.
We are developing the most incredible projects with sprawling infrastructure and spotless designed properties. There is a new level of elegance in the marketing and scale of the property, which reflects demand as the Pakistani house owner becomes more selective though there is still lots of room for improvement.
There is still a belief that investing in Pakistan is risky. Despite strong domestic demand, Pakistan currently is at 120th out of 127 countries ranked in the IPRI (International Property Rights Index). Although, In Jones Lang Lasalle’s Global Real Estate Transparency Index, Pakistan is tiered as having Low Transparency and has an overall rank of 89 out of 100 countries.
What are the purposes of these rankings? First of all, the negative thought of Pakistan brought about as a result of the current geopolitical and security situation affects Pakistan in many areas, with real estate being no exemption. But that does not entirely explain such a low rating, particularly as the security situation has enhanced immeasurably over the last few years, and it is obvious that other factors prevail. Pakistan, unlike other regional markets, is not a well-regulated market and does not offer enough legal protection for investors. This is an essential consideration, especially for foreign investors (including overseas Pakistanis). Eventually, the decision whether such customers invest or not would depend on whether their investment is protected, relying entirely on patriotic fervor is not a winning strategy. The Pakistani markets will remain flawed if it continues to be ignored, introducing investor protection regulations because every investor now expects their interests to be protected by law, just like in other markets like Malaysia, Dubai, and India.
In the last few years, a constant stream of regulations issued by the Government of Pakistan and local authorities such as the Lahore Development Authority (LDA) to protect investors and regulate the market. The LDA has circulated detailed rules regarding the approval of private housing societies. LDA is a municipal authority that is empowered to require planning and development rules, not act as a real estate regulator. Also, the federal board of revenue (FBR) has published advice to investors on how to invest safely across the country. These initiatives are praiseworthy and a notable improvement, but interventions of this nature, which are a direct result of previous fraud and scandals, are reactionary and do not go far enough. They will not address abandonment or delays of projects and cannot entirely assure that the investor’s stakes are protected. Instead of relying on well-intentioned, location-specific, non-binding advice and ad-hoc regulation, we need provincial and federal real estate regulators with wide-ranging powers both to protect investors and streamline the approval process for developers and minimize red-tape. The Pakistani Government is moving in this direction by passing Section 456 of the Companies Act 2017, which covers the opening of escrow accounts and regulatory oversight through the Securities and Exchange Commission of Pakistan (SECP). This is a promising start – but it is not a permanent solution. The solution rests in industry-led reform with a regulatory authority, which includes real estate professionals and not, with all due respect, the SBP, SECP, and municipal authorities to act as real estate regulators.
We would Suggest the following steps, as a Minimum, in order of Preference and Practicality
- Build an industry regulator (both on federal and provincial levels) with extensive powers to issue and implement rules, hear complaints, and, most importantly, regulate the overall market.
- All developers and projects must be registered with the regulator for transparency and agreement.
- Deposit all investor funds into escrow accounts managed by approved financial institutions to be utilized entirely for project development.
- Streamline the approvals for developers to create a far better development and planning regime.
- New survey regulations provide certainty on how property is purchased, located, and measured.
- Regulate the real estate brokers in order to uplift the profession and prevent unfair and corrupt practices.
- The rules regarding land acquisition and ownership need to be systematic and strengthened by the real estate regulator.
These reforms might be implemented in a lurch manner – start with Islamabad and Gwadar real estate projects. This way, we can discuss what will work and is suitable for the Pakistan market before rolling out adequate regulations for the rest of the country.
However, it is because of sensible market-driven reforms that other rising markets have been able to upgrade their industry, resulting in an improvement in local and international demand. Nowhere is this more obvious than in Dubai, which has been converted into a globally recognized property hub. Our neighbor India, with a population of 1.3 billion, is an even more fitting example as it has a constitution and legal system very similar to ours. India passed the Real Estate Regulation and Development Act 2016, which includes similar provisions to what is given above, including the establishment of a State and a Central Government real estate regulator.
The Pakistani investor earns the same level of protection that other investors have in other markets. Developers must develop, sell, and market property on the basis of established rules and not be blindsided by random and ad-hoc decisions made by multiple, often competing, government entities. If we perform reforms of this nature, we will create a world-class regulatory regime to complement the world-class real estate projects that are being developed throughout Pakistan.
Pakistan, the real estate market is emerging, and in order for us to reach the next level, it is necessary to build the legal foundations that are required to support the weight of future investment.