'Q&A WITH IQBAL NANJEE'.

Apr 30 - May 13, 2007

1. Real estate values have skyrocketed over the past few years. What do you mean the attribute this to?

The real estate values have increased substantially over the last 50 years, the only difference is that there were long lean periods in between. From Rs. 1 to 5 per sq. yard, the values today are in the region of Rs. 40/50,000 per sq. yard, depending on location, importance of the city and its convertibility to commercial. There were times when for 5 to 6 years, there was no increase in the price of the land. Over a period of a decade, this is considered as the safest investment globally and has seen steady rise over a period of one to two decades in almost all the developing countries of the World, other than those countries which were either affected by war or had very weak administration. The factors responsible generally are

a) Growth of population, movement towards urban areas and within the urban areas, the movement towards better location and in modern premises.

b) Inflation, coupled with availability of loans and concentration of the banks towards the housing sector and real estate development has also contributed to rapid growth. However, after 9/11, it was realised that the safest investment over a long period was in real estate and not with other forms of investment.

2. How much of a role has property financing affected these increases?

All the commercial Banks/DFIs have shifted their focus towards consumer banking, which has generated larger number of client as well as helped the housing sector as a whole. The policies of the government have also seen a shift towards this direction and it is the ripple affect in the entire society which is being observed. Property financing has become common and without any selling, which was existing until the early 1990's.

3. How do current real estate values compare to regional values?

As it is seen from the newspapers, the real estate prices in Dubai, though very attractive from the point of view of financing arrangements and otherwise coupled with the growth that existed in the last five years. We can see that the property prices in Pakistan in the major cities, particularly Karachi, Lahore and Islamabad are still lower than the prices in the region. The differential factors depends more on the laws, long term leases and convertibility including low taxes and other issues, side by side whether the properties segment is open to all or is restricted to the local players is also an important factor. Therefore, it can be said that there is still some room for increase in real estate prices at ideal locations and commercial viability. Land being the safest investment in most cases, attracts large investments from the institutional investors apart from industrial, commercial, and individual investors.

4. How much shortage (residential/commercial) exists at the moment?

Shortage in terms of areas may be considered as a driving force towards apartments at particular locations but generally speaking, it is just the betterment issues and regularisation which attracts the people. It is estimated that the regularised societies and areas are only about 60% and the other 40% is split between the goodwill areas and other locations which are within the major cities, yet the documentary formalities and regularisations have not occurred as they are encroached upon certain lands resulting even in shanty / poor-quality townships. This change is occurring as can be seen quite recently, where the High Courts are giving judgement in favour of the Municipal Corporation and the Administration wherever indiscriminate encroachment has occurred, but is a slow and arduous process, which would take time. To carry out accurate assessment of the real shortage would not be in order until these issues are resolved, in Karachi and Lahore particularly.

5. We have seen a growing number of foreign investors plan mega projects in Pakistan? As opposed to Dubai where there is a growing cosmopolitan population, how successful will these ventures be in Pakistan?

As stated above, there is still room for growth and superior quality will dominate as time passes. The conventional wisdom that cheaper locations sells easier and expensive areas do not sell as quickly has been set aside by some very good construction examples in the commercial sector, office buildings, as well as residential sector. However, after completion of these buildings, the level of administration, security and utility services will play an important part. It has to be seen how well managed these buildings are, as there are no strict laws and the societies which are formed to manage individual complexes for strata properties, will remain a nagging issue for sometime.

6. It is for the first time that property development projects are being carried out at such a massive scale in Karachi and other urban centers of Pakistan. As you know a strong and sustainable infrastructure is imperative to make such developments meaningful. Are you satisfied with the present state of infrastructure especially power, gas and water supplies, if not what would you suggest to cope with the situation?

Infrastructure developments generally includes road network, power supply, gas supply, electricity, environmental issues and other facilities for the areas. It is obvious that the government and the private sectors will have to work together in order to make this work satisfactorily. There has to be greater involvement of the purchasers and builders to ensure timely development as well as adequate utilities being available for each project. Until this is made the order of the day, one can only be involved for short term gains and cannot compare with a well administered country or cities such as Dubai, until then one can only hope that policies and frameworks are implemented on time and do not defeat the opportunities created for real estate development into short-term gain ventures.

7. Prior to initiate property development projects certain NOCs are required from different government agencies while there is a visible lack of coordination among these development agencies and the developers have to run from pillar to post to bring all pre-requisites under one roof. Don't you think a one window facility is the need of the hour to accelerate the pace of development in Pakistan?

One window facilities and a close coordination between the various department are necessary in order to create a healthy environment in which the infrastructure development and utilities availability are hand in hand with the other issues of pricing, overhead costs, etc., but the real issues such as obtaining proper NOC's in time and completing the paper work, it is necessary that it should be transparent apart from a one window facility. The other issue is quick disposal of complaints and severe action against those which contribute to unnecessary delay. This should be the cornerstone on which the entire issues revolve. Builders bar-charts and quality should also be maintained by third party consultants and independent Auditors.

8. Before launch of any project, we have to evaluate market appetite do you see a positive market response and a better return on such a huge investment... are the developers focusing on local investors or these project would attract foreign investors.

Overseas Pakistanis, local Pakistanis, speculators and those who opt for high market investment will only shy away, if the developers do not adhere to the quality standards and timeframe as already discussed above. A bullish market over the next few years can only be sustained for a longer period if the basic principles are followed and accountability as well as financial sector involvement in controlling quality and delivery becomes a barometer, coupled with sustained governmental support which would help in rapid growth, which we see in the entire region, not only in Pakistan.

9. It seems that there is a sudden explosion of foreign investment in the real estate sector of Pakistan, what are the motivating factors behind this sudden boom like situation in the real estate sector.

Foreign investments usually shy away when there is lack of security and the investments are tied down for indefinite period, but as already stated above it is a developing and bullish market. Therefore, we are attracting foreign investment and will continue to do so as long as we do not change the overall policy for the foreign investors.

10. How do you foresee the economic fall out on the economy of this country when the proposed or developing projects come on the ground within next two three years?

The projects being undertaken and as envisaged will not be completed in 2 to 3 years, they will take atleast 5 to 6 years, as these are very large project. The ripple affect will go down the line in generating the complete involvement of the private sector and increase in employment opportunity for the common man as well. In fact I see a shortfall in the skilled labour availability which is going to hit the market within the next 1 to 2 years and as a result we will have acute shortage, as there are various projects all over the country apart from the Kashmir area, which was devastated by the earthquake. The labour costs in the last two years has already seen an increase substantially and is likely to result in further increase in costs.

11. The proposed development of the twin Islands i.e. Buddu and Bundel at Karachi coast line looks an exciting development on the landscape of this mega city, what role these Islands are likely to play on the socio-economic front?

I do not have information regarding these projects to state what would be the impact and we have yet to see this being made public and the matters being totally resolved as regards the development of the projects of the two islands and the type of development.

"Mr. Iqbal A. Nanjee is a valuation consultant and partner in Iqbal A. Nanjee & Co."