You ViewsVOLUME 18 ISSUE # 40

The real estate sector

Pakistan’s real estate sector has seen an exorbitant rise in property prices over the last few years, with many attributing this surge to the excessive placement of black money in the industry.

With the government enforcing stricter diligence and reporting requirements for investments in bearer instruments, such as prize bonds, black money started focussing on the unproductive real estate sector as the avenue of choice. The trend caused a significant distortion in the real estate market at the cost of genuine buyers who were, and are, unable to afford a house of their own. The fact is that they stopped even dreaming and planning to have a house, or an apartment. It was, and is, simply beyond them.

Unfortunately, the way things panned out, the government stood deprived of tax revenue and the common man lost his dream. The only one making money, and a whole lot of it, was, and is, the ‘investor’, which is but a euphemism for ‘black money hoarder’. The value of houses and plots of land is often underreported on official registry, and the rest of the payment is settled under the table, making it difficult for the government to collect due taxes. And due to weak supervision by the government over property transactions, intentional or otherwise, black money continues to rush to the sector, significantly disturbing and distorting the actual prices.

There is a huge opportunity cost to this trend, as investment in the real estate sector could be, and should be, routed to more productive avenues, such as consumer goods and export-oriented businesses, that may produce profit for the genuine investor, taxes for the government, and employment for the people. Nobody hurts anybody’s cause. Nobody makes a windfall at the cost of anybody. Everybody wins. Somebody really has to look into the big mess that the real estate sector is at the moment.

It is essential for the government to introduce stringent measures and properly enforce reporting requirements so that property prices may get stabilised, and the common man may start dreaming again; dreaming about somehow having a house that he may turn into a home. This emphasises the importance of ensuring that investments go towards sectors that produce goods and generate employment, bridging the supply-demand gap and stabilising prices in the market. Only then can consumers expect to receive competitively priced goods at the best possible prices.

Jamil Soomro