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Risking for gains

Speculation in real estate leaves the end consumer vulnerable because most Pakistanis tend to rely on the word of mouth

Risking for gains

It is common for a real estate developer to launch a housing scheme and sell land to people, with plots existing only in files.

Developers try to multiply their investment while buyers of plots that need spaces to build houses, cannot afford the speculated prices. They suffer in the absence of a regulatory mechanism by the state.

Housing societies are expected to cater to the housing needs of the people but, rather, they are focused on how to generate money through speculation, making the prices go high for the end user.

“Speculation has both positive and negative points,” says a real estate agent. “It is good for a small investor because he makes some money but is bad for those who cannot make a decision in the beginning and later cannot afford the price.”

Because confused customers are not guided properly, the middlemen exploit the situation. For example, he says, “many projects of the most reputed land developing groups do not exist on ground yet they are able to sell plots at high prices due to speculation.”

He adds land developers sell files and delay their projects, ultimately urging small investors to sell the land at a minimum price. And then they buy the same plots again through their agents and sell them again on higher prices after spending some more money on the projects.

He urges the government to set up an independent regulatory authority. It seems that the existing regulatory authorities of the city have joined hands with the developers to exploit the situation. In many cases, they have launched their own schemes to benefit from this business.

Zeeshan Ali Khan, CEO Zameen.com, a website on real estate, sees no harm in speculation. “Owing to a shortage of good investment options, holding on to immovable property as a speculative asset is common in Pakistan, and that is fair enough. Speculation has never really harmed the larger real estate market of Pakistan, and it probably can’t because there are in-built mechanisms of correction that always take charge when speculation starts to get out of hand,” he says.

“But despite the market’s tendency to swiftly establish an equilibrium, speculation leaves the end consumer vulnerable sometimes because most Pakistanis tend to rely on the word of mouth or advice from relatives and acquaintances rather than doing proper market research on their own. This is where speculation can do some harm, because when speculative estimates don’t pan out, some investors are stuck with dead investments that give them no returns,” he adds.

Khan suggests addressing the issue by providing the right information to the consumer. He says they are launching the country’s first and only real estate index very soon, and that is going to be a very valuable tool for real estate stakeholders across the country.

He also appeals to the government for creating a real estate regulatory authority and take concrete measures to increase oversight and transparency in the property market. “With the right kind of information easily available, the vulnerability to speculation should decrease significantly,” he says.

Waqar Gillani

waqar gillani
The author is a staff reporter. He can be reached at [email protected]

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