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» How to Avoid Real Estate Scams?
» What real estate decline?
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» How to invest in a changing real estate market?

How to Avoid Real Estate Scams?

By Manzoor Ali Shah

Most of the time while investing in real estate we feel our hearts in our boots, but why? The basic reason for this fear can be found in the scams that shroud our society most of the time. But actually financial scams and frauds are not only limited to Pakistan, they occur everywhere in the world. Think of South Sea Bubble to BCCCI and Barings Bank to Enron they occur in all parts of the world. Real estate is all about money and where there is money – there lie swindlers; the risk of scams looms over like the proverbial “Damocles’ sword”.

We have all heard of cases where people have paid someone for a house or an apartment –and that unfortunately is never built. We’ve heard about people running away with money – or the company turns out to be bogus. Blah blah blah.

Investing money in real estate means to protect yourself from future financial fluctuations and upheavals. So it needs a deep thought and planning on the investor’s side. It is not something like a jump in the swimming pool but it is serious; for, money is involved.

Over the past 5 years, Pakistan felt some kind of economic relief which was largely due to the war on terror and its effects, thus resulting in a real estate boom across the country. However, people often forget that even before 9/11, real estate always came at a price. There is an old Hindi idiom “Uttam Khaitte, matdham beopar nikdh chakree” which simply means that farming is the best, trade is next and the service is the worst. It shows the psyche of our people – a constant obsession with land; for 60 years, property is far and away the most precious commodity. Prices have NEVER depreciated.

Add to the equation that Pakistan is facing a severe housing shortage of nearly 6 million, of which a fraction is built annually. All this has resulted into scams and frauds where imposters play games with needy people and take away huge amounts of money in the guise of builders and real estate investors.

In Pakistan the folk wisdom follows the dictum that everything is rotten in this country, but it is a fallacy and more the result of our ignorance. Everything is not wrong. Over here are people committed to their profession and the public they serve. We have to know those people and place our trust on them.

But it also doesn’t mean that all is fair and transparent and the responsibility squarely rests with the investor to be aware of the facts and figures before taking the plunge. Here are some tips which will minimize the risk of being stripped of life savings.

1. Ask your agent.
Your local real estate agent knows too much of the trade and in Pakistan there is no dearth of agents. Just ask someone you know and they can guide and inform you better about the tricks of the trade. You must ask for advice when something seems “fishy” or “too good to be true."

2. Ask for I.D. and a little more.
When you are dealing with a seller whom you’ve never met, ask for the seller’s I.D. Copies of all property deeds, titles should be submitted to you before the commencement of the transaction so that you may verify authenticity. Don’t take anything for granted.

3. Use an escrow account.
This may sound funny. And if you’re dealing with a traditional villager – it might take you several years to explain the concept of Escrow to him. However, in high profile transactions, Escrow accounts have now become part of the vocabulary in Pakistan. Escrow account means “Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.” This way if the deal goes sour, you have not to chase your money.

4. Attorney review of all deals
This is mainly for high profile investors - make sure your own attorney or agent represents you in every transaction.

5. Check with local government
Always visit the local governmental agencies to find out what is happening. The real estate projects originate on the local government level. But we in Pakistan do not know this thing and roam wrong place for just a bit of information. Local governments also carry all records on land transactions across the municipality which it serves.

6. Always check yourself – don’t outsource the job
Check for sales reports from your own sources when you are not sure of the area’s value. And make sure you are making a wise investment.

7. Control your deal.
Don’t be intimidated by your seller. Protect yourself and stand up for your rights in the contract.

8. Contingency protection
If you feel uneasy about the transaction, be sure to use a contingency in the contract. A contingency is a clause that binds the seller, but gives the buyer the right to cancel within a certain period of time. Talk to your lawyer about this one!
All this is not intended to scare away a potential investor, but everything has got a peculiar style in Pakistan – and I just thought it would be good to clear the air. And “the power of accurate observation is commonly called cynicism by those who have not got it.” So too, it is the way the real estate transactions are done and made. Practice these tips and you will come to know this gives you a unique bargaining position. Last but not least when you do make an honest contact, don’t lose it. Build on it and grow from there.


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