Interview with Dr. Nadeem Ul Haq

QUESTION  1: How do you define the real estate industry? Is there a difference between the construction sector and the real estate industry?

Real  estate is  by definition  land that has  been developed, land  that  has created  value attached  to it.  Land  is  available all over the world but it does not automatically become ‘real estate’. But if we do not allow construction, that too complex construction, the land  itself cannot be called ‘real estate’.

For instance, we have historically never allowed city centers to develop. Our preference instead  has been to develop blocks outside cities.  Over the  past 70 years we have prioritized suburban  growth  and have practically  killed the downtowns in the process.

In  most of the world  the value is  created  in  downtowns. We don’t want to develop value in downtown.  We want to create  blocks  outside  the  city,  which I     call  ‘Plotistan’.  Bare plots without attached  complex construction  is the cheapest and the  worst  form  of  real  estate  development  that  has little  economic value.  Real  estate  development that  creates economic value are the  likes  of  Rockefeller  Center,  Times Square  etc.  Here,  unfortunately,  for  some  strange  reason, probably tied into the fact that government officials get plots, the emphasis is on plots and not on real estate construction.

QUESTION 2: In your opinion what the significance of real estate industry to the economy and whether it has the potential to support economic revival in Pakistan?

Real estate is the leading sector of the economy everywhere in  the  world.  If you look  at the  US,  one of the big things that NBI  did a long time ago was develop leading indicators of  the economy.  Leading  indicators  are the ones  that  are key throughout the  business cycle.  Of these  indicators  Real Estate  perhaps is  the  leading  one. The reason being very simple  i.e. for humans to function,  we need real estate.  For me to function  I    need a  house, for you to function you need an office,  for us to shop we need retail,  for us to travel  we need transportation stations and hotels.  Everything  is  real estate. Even construction of factories is a form of real estate.

All human activity  begins with  real estate.  Real estate  must be allowed to  develop.  Nobody  is  saying  that  real  estate is the only thing that you develop.  But  if you handicap the real  estate  sector  like  we have for the  last three years,  you cripple the economy. For balanced development, we must give real  estate the same space. Real  estate development, which is construction,  should  not be just  block making. We must give it the same space as we give every other sector in the country.   For quite some time we here have argued that real estate is not an industry. Every activity that human being engages in is industry. By that I    mean it is “industrial” on the part of individuals to make things happen.

QUESTION  3: What do you think are the major issues affecting the Real Estate Market in Pakistan; and whether it can even be called a ‘Market’?

Right now in Pakistan, there is hardly a properly existing real estate market,  because it’s heavily overregulated  due of the greed of officials to get plots  or because of some  strange thinking. We have crippled  our downtowns and have built suburban sprawls. We have made our city’s car dependent. We  have  forbidden   the  development   of,  for  example, high-rise  buildings.  We  have a   huge  excess  demand,  as we have noted  in  many PIDE  publications,  for  real  estate space. One might ask – What kind of space? There’s a  huge demand,  let’s say, for example, for retail  space.  People can’t get enough shopping malls. Shopping malls have been suppressed  for  30 to  40  years.  Shopping  malls have only given  permissions  in   recent  years.  PIDE  has been  talking about  it  for the  last  30 years.  There are hardly any cinemas in most cities.  Playgrounds! – Again,  hardly any playgrounds. We do have large  stadiums,  but  no sport.  So  you can think of many real  estate  demands that  are not fulfilled.  So there is  a  Master  Planning  issue  of social  spaces or public spaces. The market will  not  provide  them  unless  priorities first  are set  right. The second thing  is  the  height  restrictions. Apart from  Karachi, there are abnormal height restrictions in every other  Pakistani  city.  High  restrictions  are 30 or 40ft,  which is crazy! It took me about 20 years of fighting with the bureaucracy to get to  Lahore to  have somewhat of our real estate in terms of building, but then what they did was they make it  very difficult  to  get permissions.  There is  a  mindset in  our bureaucracy that we can’t live  in flats,  we can’t live  in high  rises  and there will  not be any mixed use of  space.  So we want to put people in  separate compartments, taking up more space, away from  downtowns, meaning in addition to taking up more space per person, they also have to be reliant on cars  and other  motor vehicles for mobility.

That’s  one  part  of your  question. The second  part  of your question is  in  terms of market, there’s no proper real  estate market  in the  country and  it  is  a   huge problem. Whatever little real estate market exists, is over-regulated and complex construction  is  not allowed to happen.

Another   important   issue  affecting   real   estate   in   Pakistan is  that  there  are only  two  or  three  places/localities  where people trust  the titles.  People  trust  the  title  in  DHA,  Bahria or  CDA territories  for  instance.  In  other  places  the  title  is always suspicious  and the government  can also change the title  whenever it  likes  as the supreme  court did  in  terms of Nasla Tower where they killed down the tower.  The Supreme Court can change the character of many places so people are unclear about the  title.

Another issue pertains to  high transaction costs in  terms of time and money when it comes to selling  or buying property. It  is  easy to  buy and sell  property  in  DHA and Islamabad  for instance, but not in other areas. Finally, the most important issue  is  perhaps the one of  ‘lack of information’ –  what  is selling  on the  market?  What  is  not  selling  on the  market? What  is  a  fair price?  There different  rates  and prices.  There are the  market rates and then the government decided rates, which are in effect meaningless  prices,  but serve the  purpose of confusing  the  market and  unnecessarily complicate  the transactions.

So  overall  it’s  a   very  complex  situation  with  reference  to the real estate industry owing to over-regulation, lack of imagination  and  pure  bureaucratic   inertia.   Nobody  wants to  imagine  how a  market can be made.  PIDE  has just  done some  research on  this.  We are  putting  it  out  so  that  the market so  a  proper  market can be setup,  but ultimately  it’s the  government  and  institution  of  the  state  that  have to implement  research findings.

QUESTION  4: How do you see the extent of locked or dead capital in the real estate industry or the real estate market and its economic consequences?

Well,  again,  PIDE  has been writing  about it for a  long  time, since  2005-06,  there’s a   huge amount  of  dead capital  in the country. I     remember the the Prime Minister called me once and he said,  I     am going to pick this up.  I’m  going to do this,  but I      don’t think he got any traction.  Dead capital  is the capital that is lying around without being developed. So let’s  put it this way. There’s a  piece of land  that maybe was worth  nothing  30 years ago,  but today it’s worth millions of dollars. That value has been created.  For instance,  Mall Road in  Lahore  is  not allowed to develop.  It was the  downtown  of Lahore for  many years.  It was the  downtown that  naturally emerged.  But  it was not  allowed  to  develop  into  a   proper downtown  with  a  thriving  commerce  scene.  I      ask,  Why?  • Now they are trying  to develop a  new downtown outside Lahore. So it’s quite fabling!

It’s like having your heart outside your body,  not inside your body. So we would have a central  business district ordained by the government  on the  outskirts  of the Lahore,  not on the inside Lahore, but that’s how the bureaucratic mindset works!

QUESTION 5: What are a few steps that we should take to modernize our real estate industry so that it can develop to reach the global standards?

First of all,  deregulate and accept downtown  areas,  don’t bend  to  the  opposite  side.  Allow  high  rise construction along with  mixed-use of  space.  Secondly,  restrict  the cars! We at PIDE have developed a  model for developing parking. Parking is a revenue item, but can also serve to restrict motor vehicle based/car congestion. Right now we have prioritized the  car,   restricted  walking,  restricted   bicycling,   restricted all other forms of transport. Suburban development is very costly. It takes DHA 20 years to develop the sector. Other housing societies take 30 years to develop the  sector.  That is extremely costly. So instead of accepting that cost, they’ve changed the paradigm about real estate.

Real estate should  be about inner city development and not suburban development. It’s inner city development that leads the way. Our paradigm  has been that we freeze inner city and downtown development. Again coming to the question of dead capital. For example, the whole Secretariat is a huge area which used to  be a  rural area.  It’s a  huge, sprawling Secretariat, which is  no longer necessary. We could actually build something there.

We could build a  huge building there and yet save land and put the government  in there.  Similarly,  if  you think  about it,  there’s  a  huge area around the  Lahore  Museum and it  is being wasted. So we can use that land better.

Another important part of that dead capital is which somebody  should  research.  There are two  agencies  that control  a  lot of  land.  For example, the  evacuee property. Evacuee property was the property that Hindus and Sikhs left here in  1947. As of now that  is 75 years ago!  That  property still exists, and there is an agency that controls it. Why are we not converting  that  property? We talk about  privatization. Why don’t we privatize that  property  and convert  it  into value?  Right now that  property  is  dead. There are people who are paying rent on these properties, which is  peanuts. Similarly, there’s another one called AUQAF. AUQAF has a large amount of inner city land  also, that is underutilized  in the sense that this land is given out at very cheap prices. Are not these all examples of debilitating real estate development and preventing cities to grow.

Question  6: How do you see the importance of more educated  people being involved in the real estate  industry,  especially the real estate agents and their trainings?

No point if we educate people without a purpose. We can have educated real estate brokers, but we first need to get a  market going. Remember, there are still no reliable titles in the country. When I   own a real  estate, any property, it is on the basis of a revenue record. I   don’t have a  title. The title  exchange process still  relies on a  cumbersome  process and we need to change that. Secondly,  information  on sales is  not available. The government  has these fictional  prices that are destroying  the market. So unless we deregulate the market,  unless we allow it to be properly structured, unless we allow some flexibility in real estate, curb the endless processes of permissions & NOCs, what’s the point of just educating  people?

Question 7: So what was the idea behind the recently launched real estate training course by PIDE? What will it help achieve in the long run?

I  think  this country  needs a  lot  of education  when it  comes  to  real  estate.  We need to ask questions and not rely on foreign donors’ consultants to dictate our policymaking.  For instance, donors’ consultants claimed that there is a shortage of 10 million housing units in Pakistan. This is not true at all. There indeed  is some housing shortage,  but it’s not as large as  10 million.  So there’s a  huge lack of understanding. The Prime  Minister also believes  in giving people subsidized  housing.  I     would argue instead of focusing on subsidized  housing we should  first  focus on creating  employment  and facilitating  savings.  Only then  comes housing! Government has got the sequence wrong. How can you build houses without jobs?

I don’t know what you’re giving people. It costs money to run a house. It costs money to pay your electricity bill. Our purpose of setting up the course is to try and tell people what real estate is because right now we don’t know what real estate is. We think a  plot is real  estate. We think buying a file and waiting 20 years for that file to mature is investment. That is the most arcade form of investment in the world.  If we had real estate, we would have value in the country.

We would add value, we would add jobs, we would add creativity. There would be so many followers because remember, your whole life revolves around real estate. From the time you wake up in the morning, you wake up in your bedroom to the time you go do your other functions. Everything  is linked with  real estate.