THE fact that the bulk of real estate transactions are still being conducted outside the oversight of the authorities demonstrates that the introduction of reporting requirements for realtors, builders, developers and other players in this business will not be enough to regulate one of the largest undocumented sectors of the economy. It shows that the reporting conditions for real estate players who are meant to meet a key condition of the 27-point FATF action plan to curb money laundering and terrorism financing are good only for transactions carried out legally. That only a fraction of 500,000 realtors, builders and others have so far registered their business with the FBR for compliance with the FATF-related condition betrays strong resistance from the vast majority of market players who find it more profitable to operate in the shadows. It also says a lot about the unwillingness and lack of administrative capacity of the nation’s tax authorities to bring delinquents into the net for tax purposes.
Cash transactions form the lion’s share of real estate trade. This means that this unregulated and undocumented market continues to be a key haven for the parking of illegal money by all players including investors, dealers, developers, builders and homeowners. Consequently, we have seen the mushrooming of unapproved housing societies outside the country’s major cities, eating into fertile agricultural land. More importantly, the diversion of massive funds into real estate has pushed land prices beyond the purchasing power of middle-class families. But expecting the FATF-related reporting conditions to do the trick is misplaced optimism. The sector must be documented effectively through a drastic improvement in the federal and provincial laws that govern the entire land supply chain — that is if the authorities actually wish to regulate the sector in order to discourage putting illegal money in real estate and to raise tax revenues from this market. It is also important to give people with limited income access to housing. Sadly, the action taken in recent years to document the real estate market in order to tax it failed when the PTI government announced a lucrative tax amnesty last year for those who wanted to invest their illegal wealth in constriction and housing. What’s done is done. But a further delay in the introduction of stronger real estate regulations could have serious ramifications in view of the demand for compliance with the FATF plan and the need to boost tax revenues.
Published in Dawn, October 7th, 2021