Pakistan’s real estate sector is into transacting plot files that are neither registered with the pertinent government institutions nor bear any cogency in the eyes of the law. Plot files, therefore, function as a parallel currency in the country, causing gross violations of the Pakistan Currency Act 1950.
The submitted files and open files are intended to fill the deep pockets of developers and dealers. A submitted file bears the name of the holder and is subject to procedural transfer. The developers thus earn huge amounts of money under the head of transfer fees.
Open files exchange hands in a hassle-free manner. The one who holds the file is actually the owner. You become the owner even if you have a stolen one. This is the worst form of parallel currency, against which the investor gets nothing but a scanty promise. The authorities are beating around the bush. Who would induce the State Bank of Pakistan (SBP) to take action against such monetary malfunctioning?
Unrecorded property files give rise to overselling. Under this filthy practice, the developers usually sell more than available files. For instance, the developers may sell 1,500 imaginary files against a piece of land that fits 1,000 plots. The oversold files are then bought back under the name of affidavit files.
A developer may sell 1,500 imaginary files against a piece of land that can fit 1,000 plots — the oversold files are then repurchased under the guise of affidavit files
The developers further exploit public money under treacherous concepts of adjustment, buy-back and merging. Reselling is yet another phenomenon that validates this illicit business, giving rise to the concealment of the exact trail.
However, the SBP has not yet taken notice of the illegitimate property files that freely circulate in the economy as so-called legal tender money. Development companies are in the practice of stapling a clean currency note — usually a denomination of Rs 100 — with a piece of paper that assumes no legit identity. It prompts maltreatment of currency notes, which is punishable under promulgated sections of the Pakistan Penal Code.
Since most of the business of plot files is conducted in cash, it promotes the economy of unrecorded money. Firstly, it poses challenges in calculating the exact volume of the economy. Secondly, it encourages tax evasion. And thirdly, it instigates faulty functioning of the economic policies. Being liquid in nature, plot files are exchanged for cash that is further used to buy more files.
This ‘file’ system in the real estate sector should be abolished to stop the circulation of the illegally recognised medium of exchange; otherwise, the balloon of the grey economy will keep on inflating, occasioning an economic burst in the future. Technically, the real estate companies should not sell files as the term ‘real estate’ designates property consisting of land or buildings.
A significant portion of plot files is bought by individuals who are not financially prepared to pay in full. According to the popular property portals, around 22,000 plot files remain available for sale in Punjab, Islamabad and Karachi. Having no record with the governmental bodies, these files keep on increasing the volume of the unregistered economy and promote tax evasion.
The developers post redundant information on social media about the futuristic transfer and possession of plots to entice investors. The oily tongues of property dealers make exaggerated promises using various tactics. As a consequence, the innocent public suffers in terms of financial disruptions.
The number of newly launched housing societies is increasing on the outskirts of Pakistan’s major cities, and along with it, the parallel currency in the form of plot files. Fraudsters utilise the money raised through the sale of files to acquire more land to float more files in the market. The Federal Investigation Agency and the National Accountability Bureau have been investigating the matters of bogus plot files and illegal transfers. Still, no one pays heed to obliterating the illogical fantasy files for land.
The constructive role of metropolitan development bodies in addressing the file system is yet to be seen. While approving private sector housing projects, Lahore Development Authority hardly takes any measures asking developers to sell on-ground plots, not files. The same can be said for the Capital Development Authority, Karachi Development Authority, and other urban planning authorities.
Speaking of provincial avenues, the Punjab Land Records Authority could manage a database of the plot files in the private sector. Subsequent amendments to the Transfer of Property Act 1882 and the Land Revenue Act 1967 could bolster the registration process of plot files. It could further facilitate the accumulation of land revenues from the sale and purchase of plot files.
Such steps could justify the legitimacy of the file system.
The real estate scams are backed by unhealthy urbanisation competition, which has defiled the agricultural face of the country. The Competition Commission of Pakistan could play its part in exercising the powers mentioned in the Competition Act 2010.
An illogical financial promise initiates a logical financial scam. So stay alert while deciding on a real estate investment portfolio.
The writer is a socioeconomic analyst and founder of Real Estate Research Centre Pakistan.
waheedurrehmanbabar@gmail.com
Published in Dawn, The Business and Finance Weekly, January 16th, 2023
