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.
Common Real Estate Scams
This is a big one and often seems entirely legitimate but this one also falls into the if it’s too good to be true, it probably is€ category. The problem with this particular scam is that initially, there is often no cost to you. You’ll be offered free tickets to a seminar, usually offered a free gift for attending and promised that you will not be subjected to high pressure sales tactics. When you arrive at the seminar though, you almost always learn the free gift is only offered to those who purchase tickets to additional seminars. That’s not a big deal if you have the money to shell out for additional seminars because they’ll make these additional seminars sound amazing. The problem? Most often, they’re not. They’re a waste of money that will teach you nothing of any valuable, aside from teaching you to be a little more careful about how you spend your money.
Renting Empty Houses
This is a disturbing, but not uncommon, real estate scam that makes victims of homeowners and renters alike. In this one, enterprising con artists will look for homes that will be abandoned for an extended period of time â€“ often while the actual homeowner is on an extended vacation or is working in another state or even country â€“ and posts listings for the home online. They’ll sometimes claim to be the owner of the home but will also sometimes claim to be someone authorized to rent on behalf of the homeowner. Sometimes the con artist will break into the home and change the locks. Other times, they’ll just access the home using a spare key they’ve discovered somewhere on the property. It also isn’t unheard of for an especially enterprising criminal to pay a locksmith to let them in. Many people who run this type of scam will forge official looking documents for the renter to sign and will then collect rent until the scam is discovered. The end result is always the same. A well meaning renter will contact the con artist about the home listing, will rent€ the home, usually paying in case, and then the real homeowners will return finding someone they don’t know living in their home.
Rentingâ Foreclosed on Houses
There are a few ways this one works. Sometimes the perpetrator is a con artist who works the scam much the same way as the scam we talked about above with vacation or seasonal homes. Other times, the homeowner themselves are the perpetrator. Facing foreclosure and feeling there are no other options, they’ll rent their home to an unsuspecting family and take the money to get their own home somewhere else. When the eviction date arrives, the new family will have no choice but to leave although in some cases, the bank will allow the new family to stay in the home for up to three months so they can try to find another place to live.
Another common foreclosure scam involved a fake agent selling a foreclosed on home. A fake agent will gain access to the home (often breaking in) and will take a family on a tour of the home. Often they offer a far lower than market value price on the home to entice buyers. When a buyer decides they are interested in the home, the fake agent will take a deposit and give the buyer a fake phone number. Some fake agents will actually take deposits € from several buyers at once, all of whom will lose their money. After taking the deposit, the fake agent will have the buyer sign a fake property title deed (most of the time, but not all of the time) and promise to meet said buyer at the home on a specific date to give the buyer the keys to the home. When the buyer arrives on the agreed upon date, usually with moving trucks, the fake agent is nowhere to be found and the phone number doesn’t work. They can’t get into the home they think they purchased and before long, realize they’ve been the victim of a particularly cruel scam.
Renting Houses that are Legitimately For Sale
In this scam, a fake real estate agent will post a fake rental listing for a home that is actually for sale. They’ll offer the house at far less than it is worth to draw in potential buyers more quickly. Should the buyer ask about the low price, the fake agent will tell the buyer the person who owns the home has to rent out the property quickly because they are leaving the state for a job, school or something along those lines. The fake agent will take a deposit from any and all interested buyers, have the buyers sign fake rental agreements and will then disappear. This one is especially dangerous because it is often a multi-layer scam. Buyers may not just lose the deposit but the con artist may also use any information provided on the phony rental agreement to steal the potential buyer’s identity.
Renting Unavailable Apartments to Out of Town Renters
This is another big one and it is nearly impossible to catch the perpetrator. For this one, the con artist will target out of town renters who are looking for a temporary home while visiting a city for work on while on vacation. The con artist will list a real home for apartment as a temporary rental and then ask potential renters to wire money to cover the security deposit and rent. The renter then arrives at their destination and finds out the property they rented isn’t actually for rent and they have no place to stay. Making it even more difficult, it’s just about impossible to recover the money that was wired as it is incredibly difficult to trace