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Reforms to Regularise Real Estate Market


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Curbing terror financing has become one of the major concerns for Pakistan since the country’s addiction to the Financial Action Task Force’s (FATF) “grey list”, a global money laundering and terrorism financing watchdog. Since its addition to the list in 2018, Pakistan has successfully implemented 26 out of 27 points highlighted by the worldwide agency (Business Standard, 2021). However, more commitment is needed to curtail money laundering, which ultimately leads to terror financing.

The real estate sector of Pakistan is under-regulated mainly as there are many challenges associated with the valuation of land, access to information, ownership records, transaction details, and tax evasion. The agency wants Pakistan to ensure that members on its list of UN-designated terror groups cannot use the real estate sector for money laundering and terror financing. In line with that goal, Pakistan has recently announced a significant step to regulate the real estate market with strict conditions on realtors to ensure strict record keeping.

Continue reading to understand the implications for the real estate market and how the step will help curb money laundering and terror financing. 


Real Estate Regulation and Money Laundering

Pakistan’s real estate sector grew by 118pc in the last five years and is one of the least transparent or regulated in the world (Rashid, 2019). The recent uptick in residential and commercial properties prices in Pakistan indicates a fast-growing real estate sector. In line with the government’s vision to uplift the country’s economy using construction and real estate, a significant increase in investments from local and overseas Pakistanis has also been observed in recent months. Recently, a UAE firm announced to invest USD 30 million in Lahore after realising the immense potential of the city’s real estate. However, many areas prove to be a bone of contention between buyers, sellers, developers, and the government regarding real estate regulation (NIOC, 2020).

Real estate has primarily remained under regulated in Pakistan due to many factors such as outdated land records, century-old mechanisms for property verification, weak tax system, speculation by prominent market players, and multiple property valuation rates. All this makes the sector a prime focus for money laundering and illegal activities. Property valuations are also a complex area in the real estate market as different rates exist with the government, district administration, and the open market. Transactions are primarily carried out using cash transfers, and there are no legal requirements to submit ownerships and agreement records with government authorities. In many cases, the one paying for the property does not get it registered in his/her name to evade tax (Rana, 2021).

Furthermore, real estate taxation also remains flawed due to the non-availability of an integrated and digital financial system. Most real estate agents, brokers, and developers rely on speculation of property prices to allow for a massive increase in property prices. Although the activity generates huge profits, investors seeking to hide their illegal money can easily invest in these over-priced properties and facilitate money laundering. This also has a significant impact on the overall market as it increases the rates for properties generally. Therefore, there is also an urgent need for regulating real estate professionals to protect the general consumer from malpractice. The impact of effective regulation is mostly positive in the long run, even if the immediate results point towards a downward shift in economic development and investor interest.


Reforms Introduced in The Real Estate Sector

The federal government of Pakistan has recently taken a significant step towards fulfilling the last remaining condition of the Financial Action Task Force (FATF) demands curbing terror financing and money laundering in the country. Under the new measures, real estate professionals such as agents, brokers, and developers will be required to cross verify the names of sellers and purchasers of properties with the UN-designated list of people involved in money laundering and terrorism financing. If the person is not listed therein, the transaction can proceed. Otherwise, the agent will have to report the individual using an app to the relevant authorities. The Federal Board of Revenue (FBR) has also clearly defined requirements for brokers, developers, and builders that have also been registered as Designated Non-Financial Businesses and Professionals (DNFBPs).

Registered DNFBPs in the real estate sector had to provide a four-page datasheet covering multiple aspects about sellers and purchasers of the property to the FBR. Secondly, the developer and builder would be required to keep the copies of the sale and purchase agreement and the CNICs of the sellers and buyers. The recent reforms aim to facilitate the process as the requirement has been reduced to four practical standards that are also acceptable to real estate DNFBPs. The FBR has now defined the documentation requirements, role, and function of real estate professionals. The step also ensures that over 500,000 property agents and developers will have to register themselves as DNFBPs or work under the umbrella of already registered ones.

Due diligence by the customer is also a requirement for builders and developers registered as DNFBPs. At the same time, the buyer and seller will also have to submit a form declaring the actual owner of the property. This will ensure the record of a proper money trail in the financial system. Under this new law, a builder or developer is also required to maintain the record for five years to facilitate access to information in court cases. The ultimate objective is to allow only registered developers and dealers to do business in the market (Ansari, 2021).


Impact on the Real Estate Sector of Pakistan

A look at the global trends on how the introduction of regulation has impacted the real estate sector can provide an insight into the future of Pakistan’s process of regulating its own real estate sector. It is anticipated that compliance to new laws usually remains low in the initial stages; however, if the government successfully resists the pressures from markets, momentum can be gained towards fair market practice and adoption. A study conducted in the European real estate market shows that there are positive and negative impacts financially. With the benefits of regulation, an increase in welfare and a decrease in systemic risk and uncertainty can be seen.

Tight regulation of banks increases market confidence in financial stability. Regulations also make the industry more resilient to downturns. On the other end of the spectrum, financial regulation can also be seen as a regulatory burden because it increases the cost of risk diversification and operating and compliance costs, reducing the number of investors (Hoesli, 2017).

In terms of money laundering and terror financing, the steps taken by the government are a welcome initiative as it streamlines the financial system with real estate transactions. A well-maintained record of real estate transactions can also prove helpful in court cases as a majority of pending cases in Pakistani courts are related to land. Furthermore, as real estate agents, brokers, and developers will be required to register themselves as DNFBPs, it will streamline the market and reduce the influx of scam agents. However, it would be more beneficial if the transactions were recorded at market rates instead of local administration rates, as the difference between them is substantial in tax collection. All in all, the move is sure to offset money laundering practices and terror financing through the real estate sector of Pakistan.



Pakistan was added to the “grey-list” of the Financial Action Task Force (FATF), a global watchdog against money laundering and terror financing, in 2018. After completing 26 out of 27 agenda points, only the real estate and gold markets remained regulated. The Federal Board of Revenue (FBR) has also coordinated with the National Coordination Committee to ensure that real estate transactions are verified, recorded, and made through proper banking channels. Cross-ver verifying buyers and sellers with an UN-designated list of money launderers has also been introduced to block transactions involving such individuals. The initiatives are a welcome step towards curbing money laundering and terrorism financing in Pakistan.



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