Real estate cartels

Published January 15, 2024

With incapable overseers in action, Pakistan’s real estate industry stays in the hands of cartels whose executors — land acquisition experts, development companies, real estate consultants and construction groups — manifest a unity that manipulates property prices and controls the market to fill their pockets.

Let me start with how the world responds to the real estate cartels. On 15th December 2022, the Finnish Market Court fined the Finnish Real Estate Management Federation and six prominent companies for their clandestine involvement in the fixation of prices and exchange of commercially sensitive information.

In April 2021, the US District Court seized the properties owned by Rafael Caro Quintero, the Mexican cartel leader. The US government then sought international cooperation to call the culprit on the carpet. Similarly, the German Federal Supreme Court penalised Booking.com for practising cartel conduct in rental properties.

According to the Organisation for Economic Co-operation and Development International Cartels Database, cartels practice different tactics, including but not limited to price manipulation, information sharing, market allocation, curtailed competition, a network of associates, and other proscribed practices.

On the outskirts of populated areas, agricultural lands are being used for new settlements

The big show of real estate cartels prompt from acquisition of lands and end at financial exploitation of the innocent end-users. Intermediaries play their part in controlling the market by selling imaginary assets (plot files, booking forms, and allotment certificates) and on-ground properties.

The outcome of real estate cartelisation is harmful both for the national economy and the end-users of real assets. Developers are turning the green lands into gray lands, promoting unnecessary urbanisation while leaving no room for agriculture.

Financial loss to the national exchequer is yet another setback that stems from acquisition of lands at a very low price. It results in lower taxes generated and the Federal Board of Revenue suffers accordingly.

The canvas of real estate cartelisation is really massive, multifaceted and synchronised. Population growth and housing demands are the conjoined twins.

Since 1970, the global population growth rate has been declining to today’s 1.1 per cent. According to the Council of Common Interests, Pakistan’s population is increasing at a 2.6pc annual growth rate. In the absence of the development of new resources, this increase could further give rise to the housing deficit, which currently surpasses 12 million units, according to the State Bank of Pakistan.

After bringing the culture of urbanisation to the peripheries of big cities, the real estate cartels have entered small cities and towns. On the outskirts of populated areas, the agricultural lands are being used for new settlements. It obviously generates more profits for the cartels. They seem unaware of the concepts of food security and food crisis. A large number of property developers are on the scene, but cartels influence all of them.

The cartels have made the country’s real estate industry a safe haven for the tax evaders. It is money launderers’ beloved sector. If the cartels are not dismantled, the Financial Action Task Force could raise a louder voice for remodelling the real estate industry. It is better to mend our ways before the matter comes into the limelight at the transnational level.

For the last couple of years, Pakistan’s real estate market has faced problems chiefly caused by political instability, unethical practices, and economic depression. It has caused anxiety for the real estate cartels.

How can we undermine the effect of real estate cartelisation? The Competition Commission of Pakistan, through factual promulgation of the Competition Act 2010, could discourage such cartels from promoting free competition. The urban development bodies know the things happening behind the scenes. They can take the required actions to ensure free and fair market forces govern the real estate economy.

Cartels are always managed by powerful individuals and groups. They could be brought to the table to streamline the industry. Making real assets affordable could be the top priority. The responsible ones must face the music in the form of strict legal actions and heavy penalties.

Whistleblowing and general awareness campaigns could serve the purpose to a great extent. Conducting thorough investigations, imposing heavy fines, considering market reforms, and implementing new policies could help reverse the strength of real estate cartels. The matter must be taken into account before it further gives rise to money laundering and more cartels.

The writer is a socioeconomic analyst and founder of Real Estate Research Centre Pakistan.

Email: waheedurrehmanbabar@gmail.com

Published in Dawn, The Business and Finance Weekly, January 15th, 2024

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