Introduction
Real Estate is the second largest sector of Pakistan’s economy, with immense growth potential. Due to an unregulated real estate market, “capital trap” has become a major real estate economy. In 2021, Pakistan received an estimated sum of 30 Billion USD in lieu of foreign remittances, out of which a total of 40% was invested in real estate. However, a vast majority of the horizontal and vertical projects launched in Pakistan are unapproved, resulting in dead investment. Overseas investors are an asset to Pakistan’s real estate economy, but a Digital Property Verification System has made the investors vulnerable to the capital trap. An Overseas Property Verification System is crucial to mitigate the prevalent malpractices in the real estate sector. The collaborative efforts of the private entities and the government sector are necessary to make the real estate sector safe and secure for investments.
This article by the Iqbal Institute of Policy Studies will discuss the Overseas Property Verification System (OPVS). The OPVS is contingent on avoiding the capital trap, eliminating malpractices, and ensuring transparency in the real estate sector. The OPVS will simplify the authentication process of a particular property before entering into a real estate transaction.
Evasion of Capital Trap
The inspection and verification of property is the primary step of each real estate transaction. The manual property verification process is impractical for overseas investors. Therefore, thee investors skip this step and rely solely on the information provided by their ‘property dealer’. To close the transaction, the property dealers exploit the naivety of the investors without confirming the legal status of the land parcel or project. This is one of the main reasons why investments end up as ‘dead capital’ as most real estate projects and housing societies are unregulated. Therefore, an efficient Overseas Property Verification System is vital to avoid deceitful transactions. Moreover, manual property verification involves conducting due diligence on important documents which are not readily available even to the local investor. These documents include the Title Deed (confirms the title of the property), the approved Layout Plan of Property (especially relevant with Housing Societies), Property Tax Receipts, No Objection Certificates (NOCs), Sale Agreement, Sale Deed (required during transfer of property), and Special Power of Attorney etc. The main drawback of the manual system is the lengthy timelines and procedures required to obtain the said documents.
In the case of Overseas Pakistanis, a Special Power of Attorney is required for the Transfer of Property in Islamabad, which further delays the process. The availability of this special power of attorney depends on the laws of the country of residence. In many cases, investors fall for quick and easy ways to inject their capital into the real estate economy resulting in capital traps. Therefore, an Overseas Property Verification System (OPVS) is necessary to conduct speedy due diligence of the property before closing the transaction. This will guarantee the capital influx into the economy by evading capital traps.
Ensuring Transparency
A transparent real estate verification system provides economic stability by ensuring the smooth flow of capital into the economy. The main reason for the prevalence of rising malpractices in the real estate sector is the lack of a digitised system and dependencies on third parties, i.e., brokers, agents, and revenue department officers for the real estate transaction. Overseas Pakistanis rely on information provided by the brokers or property dealers because they cannot be physically present for the investment. As the manual procedures to fulfil the due diligence requirements are lengthy and time-consuming, brokers suggest shortcuts to speed up the transaction. Overseas investors are also unaware and misguided on market practices, which often leads to them injecting surplus capital in unapproved projects. This results in the capital trap and hinders the flow of investments into the real estate sector.
A lack of transparent and ethical corporate practices in the real estate sector is the main reason for the waning of investors’ confidence. The OPVS will eliminate third parties by making the information accessible through digital platforms. Access to high-quality data will boost investor confidence and increase market performance for investors. Investors will also be aware of the important documents related to a property, such as Land Title, Layout Plan, NOCs, and other documents. Thus, an efficient OPV system is essential to ensure real estate transparency and rebuild investors’ confidence.
Eradication of Misconduct and Malpractices
Digitisation has revolutionised the core values of real estate through fast-paced technologies like proptech, contech and fintech. An Overseas Property Verification System will reduce additional investment costs and make vital information accessible. It will minimise the risks of fraudulent transactions and will help to remove the practice of bribery, prevalent in the forging of land documents for financial crimes. Overseas investors are often unaware of the extra-legal measures deployed by brokers and property dealers to lure investors into real estate transactions. Furthermore, patwaris having absolute power are a controversial aspect of the manual property verification system. They tend to take advantage of the obliviousness of the overseas investors by showing them the incorrect dimensions of the property, which inevitably ends the investment in a capital trap.
The Overseas Property Verification System will end the reliance of overseas investors on property dealers, brokers and patwaris. Direct access to data will equip them to make informed decisions and avoid capital traps. The awareness of property rights is important for realising the potential of the real estate sector in the economy’s growth. Digitisation provides quick access to information and educates the inexperienced+ investors. Moreover, the OPVS will serve as a strong accountability mechanism to curb misconduct and fraudulent corporate practices. The real estate market of Pakistan provides a number of investment opportunities such as investment in housing societies, plots, commercial projects, vertical residential projects and land parcels. The OPVS will bridge the gap of real estate knowledge for overseas investors to help them make informed investment decisions.
Conclusion
An Overseas Property Verification System is critical to promote transparency, eradicate malpractices and restore investors’ confidence in real estate transactions. Overseas Pakistanis are the biggest asset to the nation, supporting the economy with foreign remittances worth billions every year. Real estate is considered one of the safest investment opportunities in Pakistan. The absence of a digital property verification system for overseas Pakistanis has led to capital traps, which hinder the capital flow into the economy. Moreover, the real estate sector is marred with malpractices due to the inaccessibility of information related to a particular property. The malpractices include corruption, bribery, encroachments, and illegal residential and commercial projects. Access to safe and speedy information is key to educating the investors living outside of Pakistan. Digitisation in real estate has transformed the sector to a large extent. However, the collaborative efforts of the Government and the private entities are required to fulfil the Prime Minister’s vision of Digital Pakistan. A lack of resources is the biggest problem for a technological overhaul in Pakistan. For ease of doing business, the private sector should be encouraged to work towards technological innovation and transformation of Pakistan. Recently, Graana.com inaugurated an Online Property Verification System to facilitate more than 9 million overseas investors living in different parts of the world. These efforts should be lauded to achieve the end goal of a safe, prosperous and digital Pakistan.
