Pakistan Institute of Development Economics

Another Regulatory Authority – RERA
Discourse Vol 3, Issue 3
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Another Regulatory Authority – RERA

Publication Year : 2022

The Islamabad Real  Estate (Regulation and Development) Act, 2020 was enacted by Pakistan’s National Assembly. The Act’s purpose is to create the Real Estate Regulatory Authority (RERA), which will regulate and develop Islamabad’s real estate market. The authority will protect buyer rights, improve transaction efficiency and transparency,  regulate  mage projects, and settle disputes expeditiously. Real Estate Authority and Appellate Tribunal, on  the  other  hand,  have yet  to  be established.  Therefore,  the  evaluation of the act will  look  into  the relevance of the objective with prevailing market fundamentals and requirements.

As highlighted by the PIDE Reform Agenda for Accelerated and Sustained Growth  (2021 ),  the  real  estate  market in  Pakistan is  marked with  insufficient information regarding the price and characteristics  of  the  property.  Land titles and rights in the real estate sector are vague and enforcement  of  rights is   unsatisfactory.  The formal  dispute settlement  mechanism is  complicated with huge compliance costs. Many potential market participants, especially overseas Pakistanis,  fearing getting an unfair deal may refrain from trading  in the sector.

The     evaluation      of     government intervention can be performed by either of the  following  criteria  i.e.,  relevance, efficiency or effectiveness  criteria.  We have focused on the “relevance criteria” to assess the prospect of the real estate promotion  through  the  RERA Act. Our evaluation  procedure has covered the following  essential  issues,  according to Husain (2010).

■    Whether the proposed  RERA would be able to eliminate the real estate market inefficiencies and to promote basic market characteristics?

■    What are the prospects that the RERA will address  the prevailing problems in the real estate sector?

■    How much extra regulatory burden will be imposed on the real estate market by the proposed RERA?

■    Do    we   need   to   establish   a   new Authority given the basic infrastructure is already in place?

To identify the major problem faced by different stakeholders, we surveyed the real  estate  market  of Islamabad.  The survey   involved   in-depth   interviews with key stakeholders. The leading concerns are as follows:

1. Transparency deficiencies in the market promote a corruption culture.

2. Dormant behavior  of  concerned authorities towards the implementation of rules and regulations.

3. Transactions and procedures are time consuming.

4. Non-professional behavior of the real estate agents due to lack of training.

5. Existence     of    considerable     illegal housing societies.

6. Fraudulent  transactions   due  to   file trading culture.

7. Prolonged  trials  in the  court  due  to vague titles.

8. Price instability and recent price hike in construction industry due to inflation.

9. Complicated      and      inefficient     tax mechanism.

10. Borrowing  constraints.

The proposed RERA Act has addressed some     inefficiencies,     however,     the approach  is   restricted.   For   instance, the  Act   remains  silent   on  the   key issue  of  price  (mis)information.   One potential   way  to  address   this   issue could be to add  a clause related to the provision  of  price  information.   RERA will  facilitate  the  digitization   process of  land   records.   In   some   provinces, the  practice  of  digitization  performed in   provincial    jurisdictions    is     sub• contracted  to  the  local  governments by the  federal   government.  The Act has also overlooked the importance of transaction technology as well. Starting with  automation  and moving towards block chain technology  would address

vague and unenforced rights issues. There   are   many   examples   around the world where formal training is required before getting  the license for a  real   estate  agent. Also the Act  has not addressed the  unique  practice of file  trading  in  Pakistan,  which  is  one of the  primary sources for  fraudulent transactions.

The  establishment  of  the  RERA  and the Appellate tribunal through the Islamabad Real Estate Act, 2020, will surely increase the regulatory burden in the real estate  market. The Web listing of all approved real estate projects, developers, and real  estate agents will reduce  learning  costs  for  the  buyers to a  degree. The objective of the Real Estate Appellate Tribunal is to provide swift dispute resolution.  However, the actual  impact  of the  Tribunal  on  the reduction  of the  litigation  processing time may be marginal. The real benefits to society due to the  RERA most likely be outweighed  by the  administrative burdens  of the  intervention.  The Act identified that the Federal government would   provide  the  seed  money  for the establishment of the Authority. Therefore, the minimal financial burden carried by the RERA is around Rs. 427.53 million  annually, which ultimately falls on the shoulders of the buyers.

In conclusion, the establishment of RERA will not be a turning point for the real  estate  sector  in Pakistan.  Instead, it  will add more regulatory  burden on the market. The more efficient way to achieve the  desired goal  could  be to focus on implementation issues by nudging CDA.