However, understanding the different variables affecting real estate and managing your risk appetite can help you make profitable investment decisions. This article will highlight key information that will help you to minimize uncertainties, remain safe from scams, and make informed real estate investment decisions.
1• General market risk
Inflation, interest rates, and overall market direction (bear vs bullish) impact all investments, not just real estate. The market is influenced by current trends and the country’s socio-political status. These risks exist in almost every market; hence, assessing the market and knowing your risk appetite before investing is advised.
2• Asset liquidity
Liquidity risk relates to the quality of an asset to be ‘cashed out whenever the need arises. Real estate is a high-ticket item, which often requires more money than most other investments (like stocks etc., where a company is fractionalized into stocks, so it’s easier to buy and sell). This high-ticket price makes real estate hard to sell since the pricing grade shrinks the potential buyer list. Sure, your plot, apartment, or mansion will sell on the market, but it takes its sweet time, making real estate a not-so-great investment if you’re looking for easy liquidity.
3• The economic health of the country
The general economic health of a country makes a significant impact on its real estate value. Several economic indicators, such as the country’s GDP, inflation rate, employment rate, manufacturing activity, etc., are added to the valuation. Since Pakistan’s economy is heading towards instability and high inflation, it is the right time to buy real estate and hold.
Overselling is among Pakistan’s real estate industry’s most common forms of deception. Here, property developers would advertise their project indiscriminately, selling more than the actual units being planned or granted approval. While the developer covers their costs, the buyer is usually left to fight the tedious and convoluted system to get their hard-earned money back.
5• Fraudulent schemes
Despite being a highly profitable avenue, the current status quo of Pakistan’s real estate market is marred with shady and fraudulent practices. Sadly, there have been numerous incidents and scandals that have raised fears among investors. These Ponzi schemes have destroyed the investor community’s trust and led to artificial price escalations and poor market stability.
6• Slow pace of development
Over-promising remains a leading cause of distrust in Pakistan’s real estate industry. Here, developers over-promise the buyers with unrealistic delivery dates they cannot meet. Consequently, the property remains unstable and does not fetch the market value expected by the owner in the given time.
7• Lack of data on real estate projects
Since there aren’t any reliable sources to fetch data or the moral sense of fiduciary responsibility, project developers and marketing agencies get a free hand at what they charge. Dishonest property developers purposely withhold this information from investors to hide the actual land possession and impose hidden charges during later stages of development.
8• Pump and dump
‘Pump and dump’ is another form of real estate fraud that involves collectively inflating the price of owned files, units or plots through false and misleading statements. In a pump and dump scheme, people who control the market by virtue of controlling a large inventory typically spread false or misleading information to create a buying frenzy that will “pump” up the price of an asset and then “dump” the land or project by selling their own units at the inflated price. This leaves the buyers with an asset they’ve purchased at a much higher rate than its value, eating into their current profits and future ones.
9• Qabza Mafia
Qabza Mafias are land-grabbing syndicates that acquire real estate through illegal means. In Pakistan, land grabbing unfortunately is not a new phenomenon. As the numbers of such groups have been significantly reduced, thanks to the efforts of lawmakers and the public at large, several of them still exist and continue to prey on small investors. The easiest targets are overseas Pakistanis who aren’t on-location to protect their property or the new entrants who need to be made aware of the real estate market and lack the legal and financial muscle to protect their property.
10• Agent adds ‘top.’
Agent top is one of the most venal types of scams. Sadly, Pakistan’s real estate market is plagued with this practice which claims the honest living of countless real estate owners and investors. The term ‘top’ is derived from the unjust profit gained on top of the agent/broker’s commission from the sale of the property. The ‘top’ happens when a broker acquires a high-yielding property from the seller with the help of a hidden partner. Since the seller is not aware of this secret deal, the broker immediately oversells it at an insane price point to an investor. This crafty process deprives the owner of a fair profit and rips off the buyer, who pays extra for the property.
The answer: Innovation & empowerment
While the real estate sector brims with profitable opportunities, it is riddled with Ponzi schemes and shady practices. Therefore, crucial to take the many risks into account before committing any sum of money to real estate investment.
DAO PropTech‘s vision of eradicating these problems from Pakistan’s real estate sector. Our proprietary, end-to-end digital platform allows you to view the costs of all the projects transparently and purchase property without the fear of being cheated by an agent.
DAO PropTech’s scientific pricing ensures you’re not paying undue premiums. Our use of distributed ledgers and blockchain for record-keeping provides no price manipulation, overselling, data breach, or fraud. In addition, our team pioneered regular construction milestone updates, so every buyer stays up-to-date with the pace of development and keeps developers accountable. Click here to learn more about our platform.
Mirza Irfan Baig
Senior Content Writer