Updated: Nov 14, 2019
By Mehran Latif
Pakistan’s ranking on the international property rights index is low, a dismal 121st out of 125 countries. In the South Asia region, we are ranked second to last. A land dispute can take decades to be settled in court; only recently, the Supreme Court of Pakistan resolved a property dispute that had been pending a resolution in Pakistani courts for over one hundred years. According to USAID, 50% to 75% of all disputes filed in the lower civil courts and high court of Pakistan are property disputes.
It should come as no surprise, that colonially inspired laws do not have the capacity to fulfill the needs of the modern Pakistani. During British rule (1757-1857), a large number of regulatory laws were imposed, which are still followed throughout the country. Articles 23, 24, 172 and 173 of the present day constitution deal with private property rights and their protection. The oldest law in effect is the Transfer of Property Act 1882, and the newest is the Land Revenue Act of 1967. The mortgage market in Pakistan is only 0.5% of GDP, much lower than the developed world, and regional neighbors.
Disputes over the property boundaries between neighbors, family disputes, inherited disputes amongst, siblings, and civil disputes are commonplace. Scores of people have lost their lives to violent conflicts arising out of property disputes.
In Pakistan, Land reforms were initiated in first in 1959, then 1972, and finally in 1977. The land reform dismantled existing property holding in the name of land distribution. Not only did each stint of land redistribution fail to generate the social and economic benefits expected by the policymakers of that time, the Federal Shariat Court in 1989 overturned the reform, deeming it a violation of the rights of property owners enshrined in the constitution. Land reforms focused on the redistribution of rural properties. Urban areas remained immune to such reform, and this may be the reason why most available properties in the present day can be found in cities and towns.
Property owners are globally recognized to have at least four rights upon their properties: the right to the use, right to income, right to transfer, and right to enforce a claim. Another barrier to the optimal utilization of private properties is the phenomenon of communal lands, a concept implemented in the 19th century by the British. Communal lands suffer from all the disadvantages of private property and reap none of the benefits. Communal lands may be structures under three models, i.e. permanent titling, Delegated Management, and Traditional customary communal rights.
People living in communal lands have no direct claim of ownership. They cannot borrow money to develop their properties, nor can their properties be liquidated or transferred in case of a personal emergency. And therefore the development of such land is virtually impossible to achieve. Communal property rights cannot achieve the economic efficiency possible under individual land titles. Baluchistan has most of the communal land in Pakistan, with such properties located in the vast regions of Kalat, Kharan, and Lasbela. Communal property rights are also in place in the Khyber Pakhtunkhwa, in places like Dir, Swat, and Kalam.
Then there are laws such as the capital gains tax. The capital gains tax was introduced in 2016 to curb what was referred to as speculative trading in real estate. Taxes where imposed on any property transfer for three years from the time of acquisition. The consequence of this badly structured and unnecessary legislation was a slowdown in property development and sale.
The blockchain is emerging as an adaptable modern platform for record-keeping and transactions. The government can reduce the risk of record tampering, scams, deceits because of middle man exclusion and trustworthy data information in Blockchain. Georgia implemented a blockchain-based property registry in 2016, as a public-private partnership model. Sweden is well on its way to do the same, despite having a computerized land registry since the 1970s.
The federal capital in Islamabad does not even have a digitized record of private property. Khyber Pakhtunkhwa and Punjab have recently digitized their land records, but the processes around property transactions remain complex and expensive. The digitization effort has solely been pursued the purpose of administrative convenience and control over the medium to long term. It serves no purpose for the majority of private citizens.
Property rights protection is fundamental to a prosperous society. Through ownership of land, people attain the freedom of enterprise, and protection from theft. In Haiti, due to the 2010 earthquake, thousands of people were evacuated as the disaster destroyed their homes. Many of the displaced people had no formal rights to their properties, which allowed developers to seize the property. Moreover, 85,000 people remained displaced as of 2015.
Formalized rights support communities to recover when things go wrong. Whether it is a natural disaster, forced displacement or war, formal property rights protect the community.
In 2008 in Indonesia’s Sembungan region, government-granted property rights to villagers. This area was a victim of deforestation and started plans to preserve and restore the forest. Formalization of the property rights incentivizes the owner to invest in their properties and convert it into a form of productive capital.
What ultimately does explain the difference in the levels of prosperity between nations is the definitiveness, and clarity of the institutional framework adopted. In Pakistan, the rules or institutions that govern us are indeterminate and restrictive. If policymakers are serious about real change, laws, and institutions must become inclusive. Expanding property rights and improving the quality of property regulations will enhance economic conditions in the country. The restrictions affecting Pakistan entrepreneurs are essentially the same restrictions choking the potential of foreign direct investment in the country.