An interview with Imtiaz Rafi Butt, Chairman Rafi Group and a prominent real estate developer.

Feb 20 - 26, 2006

PAGE: Do you think that a great change is in the offing as regards to real estate boom?

IMTIAZ RAFI BUTT: To put it right, it is sheer exaggeration to call it a boom. It was, in fact, a bubble, which suffered a "heart attack" and is in the ICU at present. It is out of danger though, but will take a long time to come back to its original state.

The principle of hype is that it rises quickly and comes down even more rapidly. When the hype breaks down it's like musical chair, one doesn't know when the music will stop and who gets the chair. With the bursting of the bubble, the prices of plots get composed.

In such a situation new builders may suffer an irreparable loss. As a result, litigation starts between the developers and the buyers, which is extremely harmful to the business.

PAGE: What were the key factors behind the escalated investment in the sector?

IMTIAZ RAFI BUTT: The 'real estate business' (REB) became the latest buzzword. There were two reasons as to why it has gained investment. First, the price of land has escalated out of proportion. The profits in this business have outstripped the profits in any other business activities, and have given a terrible blow to them. Some of these traders have even fallen prey to frustration. These greed motivated persons invested heavily in a sector about which they knew nothing.

Secondly, real estate (land, plots, houses and buildings) registered a sudden boom in the last half of the l970s when thousands of Pakistanis went abroad in search of employment and started sending back huge remittances. This boom reached its pinnacle in the 1980s when co-operative banks entered this trade. These banks acquired money on high rates of interest from the public and invested them in real estate.

The persons at the helm of these affairs, however, had no experience in this field. As a result of their huge investments and competition among themselves, an artificial hype was created and due to their unconventional way, they suffered huge losses and collapsed. Millions of rupees in public funds got blocked. It may be said in parenthesis that the NAB is still busy squeezing money out of these banks and paying it back to the people. These disturbing events had an adverse effect on real estate business, which lost credibility.

They changed their role as traditional commission agents into investors and artificially raised the prices to the level that were hard to absorb. Speculation was rampant. This unconventional mode of business had reached its apex in Lahore and Islamabad.

Perceiving that huge profit would be made in the property business, industrialists and other businessmen also joined the rat race with their enormous investments. The hype increased and prices became all the more abnormal and unrealistic. Observing this, another class also marched into real estate but chose to build plazas and multi-storied buildings instead of land. They only had huge profits in mind. Being unaware of the intricacies of the business, they were unmindful of the viability of the plazas as well as the purchasing capacity of the buyers. As mentioned earlier, billions of dollars had come into the country but unfortunately for this group of investors, most of that money went into land and housing, not commercial property. In the final analysis, it could be said that the buyers fell victims to greed and haste. These factors ruined the traditional real estate business and shook its very foundations.

PAGE: What has been happening in the real state sector presently?

IMTIAZ RAFI BUTT: Whatever has been happening in the domain of real estate was quite contrary to my own long experience in this trade. I was apprehensive that this artificial hype would harm the business atmosphere as a whole. When something natural is put through an adverse process, it loses its original contours. I have resorted to the use of medical metaphors to emphasise my point of view and save others from committing the same error.

Real estate received a new boost after 9/11 and led to its third boom. Pakistani expatriates remitted 7.5 billion dollars to the country. A large chunk of this money went into real estate, especially in the purchase of files.

PAGE: Predicting that the boom would last till 2006, why are you marking it as a hype now?

IMTIAZ RAFI BUTT: My experience tells me that greed takes over a sudden hype anywhere in the world, lured by the situations, speculators abound, when the hype ends, their business collapses as well. Since every person becomes a seller with no one remaining as a buyer, the expected profits never come. Consequently, their capital gets stuck, which takes ages to get the better of a difficult situation.

Even the State Bank has stopped its financing so that the artificial rise in prices is also stopped and everything comes to normal.

The prices began to stabilise the bubble, which could have been busted by 2006. It is true that money is circulating on a vast scale but it should also be kept in mind that foreign investors are moving into real estate, particularly into the housing sector in a big way. The buyers were in a fix for the bad reputation of some housing schemes.

Moreover, some buyers had already started investing in the already completed project in the country, and not much bullish activity was noticed in the booking of new projects that were coming up, while others were focussing on Dubai for investment or purchase of real estate. This boom, therefore, would not last very long, as the prices have reached at an unimaginable level. If not for other reason, it still falls down with its own weight.

PAGE: What do you think of present and the likely future of real estate?

Imtiaz Rafi Butt: The credit goes to President Musharaf for urging Sheikh Nahayan al Mubarak Nahayan, the nephew of Sheikh Zaid to invest in Pakistan.

The Punjab government already allotted 91 kanals of government land on Ferozepur Road for the purpose. The Zaid Commercial Center project would be the largest of its kind in South Asia and would cost 250 million dollars. A day before its inauguration, Sheikh Nahyan also signed an agreement for the construction of a huge residential complex near Lahore, which would be spread over an area of 30,000 acres.

President Musharaf, it is learnt, has also suggested to Sheikh Nahyan to consider the construction of a residential complex in Islamabad on the other side of Margalla Hills. The "Al-Ghurair" group of Dubai has already arrived in Islamabad and initiated the residential plaza project in DHA. It is the President's earnest desire that the target of 30 lakh houses, which Pakistan needs, be achieved at all cost.

Two projects have been initiated so far. One is the Zaid Commercial Centre - being a 45 storey edifice, it would be the tallest and largest in Pakistan. Another project is that of a new city, being launched by the Dhabi Group across the River Ravi on a land measuring 30 thousand acres.

PAGE: How do you see Lahore with the view of upcoming changes taking place?

IMTIAZ RAFI BUTT: The real estate scenario in Lahore is undergoing a radical change. Developers investors, engineers and others connected with the trade should gear up for these imminent social and economic changes and adjust themselves accordingly. This is the only route to survival. The coming change is a challenge that will add new vitality to our creativity and passion for progress.

Some huge projects are scheduled to come up in Lahore. The public will soon learn about them. These projects, it may be added, are drawing foreign investment on a massive scale.