Home » Real Estate Trends » Issues of Housing Society Regulations in Pakistan
Given that it is being considered to give the construction sector an industry status, it is likely that there will be taxation and other fiscal and non-fiscal benefits associated with the decision. The main purpose, however, is to promote housing supply at affordable prices in order to meet the growing demand.
One big impediment for classification of housing sector as an industry is its historically informal nature. There are shades of grey dominating this labor-intensive sector. This has to change to boost formal investment, including Foreign Direct Investment (FDI).
There are deep rooted issues in land titles and approval processes which hinder formal development. This keeps formal financing institutions at bay from lending to both builders and consumers. Nowhere in the world does housing finance flourish without formal financing and investment.
Making a housing society in Pakistan is a pain for businesses as they attempt to operate in compliance with rules and regulations. The inherent advantages are for those who have access to opaque information systems, and for those who can politically and financially maneuver the regulatory departments and authorities. That is why venture capitalists’ and private equity firms’ interest in the housing sector has remained limited.
The housing society regulations system is fractured with loopholes that constrain the inflow of big white money. For example, in Lahore, there exists a masterplan and is being updated frequently. But every developer has to go through a lengthy process in order to check the status of land. If the land is classified for agricultural use, housing cannot be developed on it. The requirement to go through such long approval processes, despite having such classification on the masterplan, does not make much sense. Similar is the case for land allocated for industrial use or for any other purpose.
In addition, a planning permission is required to see if the land can be issued for housing development purpose or not. The builder does not necessarily need to be the owner of the land to check its status. If it is not owned by the developer, the financial strength is assessed to gauge the ability of the developer to acquire land and develop a housing society on it.
The planning process does not end at this point. Numerous other approvals such as no objection certificate (NOC) from revenues, WASA, and engineering department of LDA are required at this stage. For a developer having past experience and understanding of the system, it would take around a year to get the planning permission. Imagine the amount of time it would take an amateur to get through the process.
The absurdity is that another round of approvals from respective departments is required. The problem with this is not just the duplication of the process which takes up time to dilute the commercial viability, but also the avenues of fraud that open up during the process. The approvals from various departments are demonstrated by developers for selling plots.
Since planning permission can be acquired without even owning the land, shady developers, based on approval documents, start selling plots within un-acquired land. Buyers usually do not know that fact and the risk is transferred to buyers as developers’ equity investment to the project remains limited. Once the developer recovers their investment from the buyers, they no longer have the incentive to develop the land. There are many cases where developers prematurely get out of the project and loss is borne by the buyers.
Ownership determination is a cumbersome process and it’s based on age old laws and systems. Even when housing is developed, it is hard to map exact ownership of plots within the land. This means land titles are unclear, and any future value of the land is locked. Moreover, the consumer cannot access formal mortgage financing to build housing units on it.
Even the land digitization exercise in the previous regime could not safeguard consumers’ rights. These digital records are normally not in line with patwari records. The patwari has to be involved in the process and if the patwari of any area is dishonest, prevalence of frauds increases.
The poor land recording system and slow judiciary processes often lock the land value in case of dispute, which is a common element in inherited land. Any piece of land coming in third generation is highly likely to be the subject of dispute. Even if one person out of tens of joint owners refuses to sell, the land titles become ambiguous.
Currently, there is one window operation which functions primarily to reduce the time and complexities involved in the process of development of housing societies. However, this window does not work as it is deemed on paper. At the back end same old processes are in practice. This requires speed money and it’s still open for fraudulent practices.