Pakistan’s real estate sector offers itself as one of the most lucrative and stable investment options for millions of people. A healthy Return on Investment (ROI) makes it one of the most profitable sectors. However, real estate investment is more complex than buying a property at a lower price and selling it at a higher rate. While investing in real estate, there is a lengthy process of diligence that needs to be carried out by potential home buyers or investors. There is a risk of investing in illegal housing societies or other commercial investment projects in Pakistan. In the Federal capital, there are 140 illegal housing societies, which places a question mark on the efficacy and efficiency of the local administration.
The State of Illegal Housing Societies in Pakistan
A significant amount of capital is trapped by dubious real estate developers and unapproved housing societies. According to the Capital Development Authority (CDA), there are 140 illegal housing societies in Islamabad alone. CDA published a list of authorised housing societies in which investments are encouraged. However, a closer examination of these housing societies found that only 22 of them possess a NOC, putting the percentage of legal housing societies at 10%. A special audit of the Housing Societies Directorate of CDA by the Auditor General of Pakistan (AGP) revealed large irregularities and non-compliance in issuing NOCs. The audit report also elaborated on the financial losses incurred by illegal and unapproved housing societies. The report states that illegal housing societies have incurred losses worth PKR 5200 billion for the public. This indicates the level of capital trap that occurs in Pakistan’s real estate sector.
Causes Behind Proliferating Illegal Housing Societies and Other Developments
Various reasons have contributed to the rapid increase of illegal housing societies and other unauthorised development projects. The audit report issued by the Housing Societies Directorate listed several causes. The report showed that the local development authorities gave No-Objection-certificates (NOCs) without proof of land ownership, or the NOCs were based on fake documentation. Housing societies also obtained NOCs by CDA despite being outside the Islamabad Capital Territory (ICT) boundary. Dubious claims of developers also trap investors who wanted to invest in the real estate of Islamabad. In addition, several real estate developers have started to sell residential and commercial plots under real estate projects that only have a fraction of their total area approved by the relevant authorities. For instance, in Islamabad, housing societies with 1200-1000 square feet of land have only approved 200-300 square feet of their project, and these societies tend to sell their project under the approved label. Such malpractices have increased the size of the illegal residential and commercial real estate sector, and it continues to harm the image of this vital industry.
Land administration authorities’ weak internal auditing system also allows illegal and unauthorised activities in the real estate sector. A lack of strict regulatory oversight by the concerned departments does not help the administration identify financial irregularities. Moreover, the lack of transparency in procedures and accountability has mushroomed the growth of illegal housing societies in many metropolitan cities of the country. Consequently, investor confidence in the residential and commercial real estate sector has declined and calls for wide-scale and systematic action against these developments through a nexus between the government and businesses.
Way to Authentic Property Verification
To avoid investing in illegal and unauthorised real estate projects, one must invest some of their time and money in ensuring the legality of the property and the attributes mentioned or provided by the developers or the sellers. Expert real estate investors advise first-time homebuyers to invest only in established and well-reputed communities. Most small real estate ventures can yield solid returns; however, this doesn’t guarantee that their next venture or project will be successful. Therefore, it is best to avoid risk and invest in reliable societies.
New investors or first-time homebuyers often target high-end but dubious marketing campaigns. A lack of investor knowledge and on-ground information makes them vulnerable to high-end marketing campaigns. If investors want to invest in a high-risk and high-yield property, they have to make sure that they do not fall prey to those marketing campaigns.
Real Estate firms like PropSure Digital Solutions aim to mitigate these risks in the real estate sector of Pakistan by facilitating clients to understand industry dynamics and make informed decisions. PropSure has an Online Property Verification System (OPVS) for effective property verification. It provides Property inspection Services (PINS), feasibility studies of commercial and residential projects, forensic audit reports, and technical advisory services.
Property Verification Centre at the DC Office Islamabad
The lack of property verification in the real estate sector of Islamabad have forced the local government to take strict action against housing societies by providing property verification services to potential investors and property buyers in Islamabad. The property verification system aims to protect investors against dubious real estate developers and companies that sell illegal or unapproved residential and commercial real estate projects through fraudulent marketing campaigns.
Illegal housing and commercial real estate projects have increased in Islamabad and other metropolitan cities of Pakistan. This has also led to large public losses, amounting to 5200 billion PKR. Real estate developers and business owners need to join hands and define a framework to protect investors and potential homebuyers against investing in illegal real estate projects.
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