The Competition Commission of Pakistan (CCP) has found that the rampant advertisement campaigns of unapproved schemes by developers and builders are a major issue in the real estate sector, reflecting deceptive marketing practices.
According to a report of the CCP on real estate sector, it has been observed that various undertakings on the launch of housing schemes have indulged in deceptive marketing practices in the real estate sector of Pakistan. One of the major and most frequent issues pertinent to deceptive marketing practices in this sector is that of rampant advertisement campaigns by unapproved schemes. Builders and developers start advertising their schemes prior to attaining NOCs from relevant authorities. The consumers, upon viewing such ads, invest significant amount of funds in such schemes. However, these schemes either prove to be completely nonexistent or due to absence of NOCs, get cancelled by the relevant authorities. Either way, it is the end consumer that incurs huge losses - often lifetime savings - due to instances of such deceptive marketing practices.
The CCP pointed out that even when a housing scheme is legal, undertakings are involved in making deceptive claims related to payment details, such as development charges, frequency of instalments, etc. Additionally, such housing schemes are often involved in making fraudulent claims regarding properties and characteristics of housing schemes like percentage of open area, infrastructure related claims, hidden development charges, provision of undisrupted utilities and so on. Other deceptive practices include fraudulent claims pertinent to location, precinct details, etc, as well as failure to fulfil commitments related to delivery date. Such deceptive conduct has also been observed by mall operators wherein they claim to have major brands in their malls as well as entertainment facilities in order to attract investors. However, upon renting shops, shopkeepers discover deception in such claims.
The CCP said that establishing a system to collect and offer information related to real estate can help in planning and market development as well as benefit the consumer to a great extent while ensuring transparency. In developing investment products related to real estate, such as real estate investment trusts or scrutinised real estate instruments, the accumulation of information related to real estate like rental prices in different zones or the vacancy rates of buildings is essential. In order to meet this end, it will be necessary to establish a data center which collect and analyze data related to real estate, along with a system, where individual real estate companies and financial institutions can accurately calculate the yield and risk involved in real estate investments. To encourage collection, research, analysis, and dissemination of real estate sector data, a data and research center should be established which accumulates all data related to real estate, plans, major schemes, prices and rental values in different zones, vacancy rate of buildings, etc.
The CCP said that the real estate agents are one of the most important stakeholders in the market who provide a linkage between the buyers and sellers. Where the end consumer may be unaware of details of a project, the real estate agents often have most or all information of such projects. However, even though they have such a significant role to play in this sector, no efforts have been invested into regulating them and bringing them under an organized banner in Pakistan. The real estate agents often operate independently or under small-scale, voluntarily formed associations with no streamlined efforts undertaken across the country. Internationally, significant efforts have been taken to bring all real estate agents on one platform where they are governed by various laws and fulfil stringent requirements.
Internationally, real estate agents can operate only after obtaining a license from relevant local/national authorities. In order to do so, they are often required to obtain a certain level of education, general as well as specialized, and gain relevant experience, followed by which they can acquire a license to practice in the field, the CCP said.
They are also governed by a well-defined code of conduct according to which, inter alia, a real estate agent may also lose its membership/license if involved in malpractices. Where such agents provide great ease to the public in allowing them to buy and sell property in line with their demand, they have also been identified as one of the main players responsible for massive fraudulent practices. Unless there is a proper certification and registration system of these agents, on the basis of some specified qualifications, chances of their involvement in fraudulent practices cannot be eliminated.
The CCP said that participants in real estate markets require access to real estate professionals services, such as valuation, investment advice and property management. Although the property dealer profession has thrived in the past decade or so, there exists a need for competent professionals who can be relied upon by all parties. Ways must be found for enforcing adherence to technical, educational and ethical professional standards, through the setting up of licenses or self-regulation by a credible professional body.
Generally speaking, the consumers in underdeveloped countries like Pakistan are less aware of their rights. Unlike the developed countries where strong consumer associations have been consistently supported, both by the government and the private sector, there are no such forums in Pakistan, where consumers can raise their voice for protection of their rights.
Due to the absence of a strict regulatory oversight and surveillance over the fraudulent and inefficient Real Estate Developers and intermediaries, the consumers are recurrently exposed to risk of frauds and delayed completion of commercial projects and housing societies. Moreover, the conventional land record registration and title transfer systems have remained complex for consumers. In order to protect the rights of consumers, there is a need to encourage formation of consumer protection associations at different levels, CCP maintained.
Most of the issues experienced by the investors in this sector could be avoided if due diligence is practiced by them prior to investing in such costly projects. As rightly pointed out by various stakeholders, most of the investors, especially the general public buying residential plots and houses, rarely conduct thorough research before purchasing property. It is after they have been cheated that such victims approach regulatory authorities for help. Hence, the onus of scams taking place at such a massive level is also on the members of the general public. Most of the frauds can be curtailed if the buyers themselves also make an effort and research before making such major commitments as expected by any rational being in making purchases of any kind.
The CCP said that several concerns were also raised by the business community. They highlighted that not all defaulters are felons, rather there are often genuine reasons of such reported bankruptcies. As already discussed, there are multiple issues in the real estate sector as it is highly unorganized. Various disruptions are faced by the builders and developers due to stringent regulatory framework, inconsistencies in implementation of laws, corruption discrimination, lack of cooperation by government agencies like in timely handing over of purchased lands, provision of utilities, granting of NOCs, and so on.
Moreover, there is lack of a strong network of financial facility providers at public and private levels. There are very few financial facility providers like House Building Finance Corporation Limited (HBFCL). In addition, unsuitable tax policies are also damaging the business community. All these factors hamper ability of private entities to execute their projects and fulfil their commitments, eventually hurting the general public. Therefore, serious efforts must be dedicated to formulating policies which would make the business environment in the real estate sector more conducive, the CCP added.
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