Holding of any type of property or land that could be a residential, commercial, an industrial area or a vacant land all useful to generate economic gains. For example, leasing the land, selling the land, or giving it on rent. In the recent years, especially after the Covid-19 pandemic government pays a lot of attention to the real estate industry by providing different amnesty schemes. In order, to generate income from this sector in the time of global pandemic crisis. Because the real estate can play a vital role in economy as a sector and can be used as an engine for the economy.
But unfortunately, our real estate sector is not that much evolved to help the country in economic crisis. Because of the fact that there is no proper channel through which it has emerged. And there is no autonomous regulatory authority from the government side to monitor its functionality, which have led to the creation of different issues like price manipulation, tax pilferage, whitening of illicit earning and land grabbing.
First, the increasing price of houses has made it harder for middle-income families to buy or construct a home for themselves and their children. This sharp hike in the price of land is the result of the high injection of money into the real estate business. According to the report of the State Bank of Pakistan, the ratio of income required to purchase a house in Pakistan is 1:20, and by comparing it with the outer world, it is 1:5. The prices of houses have increased by 152% up to now since 2012. This increase in prices has lowered the purchasing power of middle-income families.
Secondly, this undocumented and unregulated market is a haven for all the illicit earnings of the people who want to white their earning by investing their black money in this market. The amnesty scheme provided by the PTI government to the real estate or construction sector in order to boost the economy because many of the industrial sectors are linked with this sector. The schemed says that withholding taxes are removed from all the industries except cement and steel industry.
The ultimate goal was to increase employment and provision of the low cost houses become an unattained goal. Instead of reducing the gap of housing shortage become wide. Due to the increasing prices, and huge influx of investment by the people. It includes investors, builders and black businesses. This money could be used in different illicit activities which would have bad impacts on the society.
Thirdly, the mushroom growth of unregulated or unapproved housing societies in the peripheries of the major cities is eating on the forest area and the land that was best for agricultural purposes. Many housing societies have grabbed either grabbed government land or land from the people, and they are building housing societies especially in Punjab and Sindh provinces, and in many other places, like Islamabad.
Moreover, this unregulated and unmonitored real estate has given a free hand to many non-tax filers, and they are investing their money in real estate and getting high returns on their investment, but they are not paying taxes. According to some reports, only a few thousand have registered their businesses with FBR. To generate more revenue from real estate this should be regulated by the government.
The above mentioned are the impact of unregulated real estate and its prospects will be. The sector must be regulated both at the federal and provincial levels. It needs a regulatory body that could monitor and govern the whole real estate which would help in solving the issues created by this undocumented economy. This would further help middle-income families to afford a house at reasonable prices. The government will get rid of black businesses to some extent because the regulatory authorities will have a check and balance on their investment from their money. In addition, this would help to save the forest and the land that is good for agricultural purposes. People will not commercialize the agricultural land. Furthermore, when the government documents the real estate, it would help the government to generate revenue in the form of tax from this business.
Real estate has a stronghold in Pakistan. To get rid of this market capture, the government must adequately regulate the real estate market which would have fruitful results soon. The government needs to take this issue seriously and start work on it immediately.
The Author is a MPhil Econometrics – Research Assistant at the Pakistan Institute of development Economics (PIDE), Islamabad.
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