Even though the Designated Non-Financial Business and Professions (DNFBPs) initiative has improved reporting requirements for the real estate sector, many transactions in the sector still take place in the grey area, posing severe hurdles to the system.

“Many housing societies and market actors are exchanging open files worth Rs1 million to Rs10 million in the open market using open certificates and affidavits while remaining completely outside the regulated regime,” according to a senior government official.

He explained that under the DNFBPs initiative, the Federal Board of Revenue (FBR) and other institutions, in association with the Financial Action Task Force (FATF), had done a fantastic job of regulating the real estate gems and jewelry sectors, and other professionals. New information, on the other hand, revealed that some places remained outside the controlled network and functioned as a money dumping site while remaining outside the legal system.

This business model was first used by property dealers and their clients, who traded open files, but now it has been adopted by well-known housing societies and developers.

As a result, a plot, property, or item is first registered in one person’s name but is then transferred to another without paying taxes to the government. Such transactions happen within the society/internal developer’s system, which collects membership fees, transfer fees, sports fund fees, security fees, and so on while permitting the transaction but not technically entering the government set-up or revenue mechanism.

Because the developers and societies do not own the land, they are marketing, and they sometimes use open files and certificates. As a result, they rarely issue legal allotment letters and instead assist in the exchange of undeclared or even black money.