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Real Estate Projects in Pakistan - Rising Delivery Default Risk of Buyers

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Real Estate Projects in Pakistan - Rising Delivery Default Risk of Buyers

Postby Fuzail » Tue Aug 02, 2016 2:58 pm

There is a plethora of recently launched real estate projects in Pakistan, and the supply glut is rising fast; all things pointing at rising delivery risk faced by the installment payers, a significant proportion of which is the expatriate Pakistanis. Every new project launched raises the delivery risk of launched projects that are under development, let alone the mishaps like DHA Valley Islamabad in which sponsors defaulted by several years on their initial delivery promise despite the fact that all offerings were sold.
Many projects are unable to sell all their future developed plots, and/or some of the installments received from the buyers are being syphoned off to purposes other than the promised development. The largest private realty developer is giving away billions in charity and who can tell this money is coming from profits or development reserves? What made DHA Valley Islamabad default repeatedly on its delivery promises, even when all properties were successfully sold off-plan? What is happening to the development speed of projects, where the sponsors are not even in possession of "sold" land? Where are the buyers' installments going?
The Government might have exacerbated the delivery risk, by imposing higher Capital Gains and other Taxes in the 2016-17 federal budget.
The Government must take a brave step to protect the buyers/investors from delivery and other property related risks, emanating from the financial indiscipline of project sponsors.
SECP and State Bank of Pakistan are quite familiar with using credit rating companies and external auditors to contain project risks. The Ministry of Finance must make it mandatory for all sponsors to get each of their realty projects financial risk rated by rating agencies and also require the sponsors to get half yearly external audit. The buyers must be risk protected, even in the worst case of the sponsors going bankrupt or abandoning the projects.
If a sponsor defaults on its delivery promise, the licenses of related rating agency and the external auditors must be cancelled, unless they have given an advance warning at least one year before the actual default.
The rating and audit system in fact needs to be adopted far and wide in Pakistan in any area where individuals pay advance installments for anything.

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