The Supreme Court of Pakistan recently gave its judgement on land procurement in Karachi’s Bahria Town. The judgement was quite comprehensive, and is considered case law now. Sale and purchase of land in Bahria Town is illegal ab initio. However, this development failed to garner much attention in mainstream media. Only one mainstream English daily carried the story, and the English media was also eerily quiet. This is strange, considering the implications this case could have. The litigation pile up in civil courts will likely go through the roof, but that is another topic for another time. There are also incalculable economic implications.
In 2007, a mortgage crisis triggered the worst recession seen by the global economy since the Great Depression. It all started in the real estate and housing sector. The housing bubble burst leading to mortgage delinquencies and foreclosures. This internal meltdown in the US economy’s real estate sector triggered a shock wave hitting all economies except perhaps China’s due to the cushions of insulation. Pakistan was also hit by this worldwide wave. Even today, the global economy is struggling to stabilize itself. This is an oscillation pattern which follows global economic crises.
Pakistan’s economy is resting — or more illustratively — contained within the real estate bubble. Investments in real estate are one of the few growth industries in Pakistan. The service sector’s GDP contribution amounts to55.6 percent and industry a mere 19.6 percent. The service sector intrinsically follows capital flows (according to data available with Pakistan’s Ministry of Finance in 2016). Our trade deficit stands at $25.5 billion according to OEC estimates.
Pakistan’s major exports are varieties of textile and rice. The only major manufacturing industry is textile. Excuse the pun — but we are only spinning yarn. This narrow dependency creates huge economic vulnerability. Dampening of demand in the global market will hit this industry very hard, resulting in amplification of stress across the whole economy. Therefore due to the vulnerability of textile — or the manufacture sector in general — capital flows are directed towards real estate. Services just follow.
In 2007, a mortgage crisis triggered the worst recession seen by the global economy since the Great Depression. It all started in the real estate and housing sector
A cadastral survey of Pakistan was last done decades ago. It is the only method that legally defines the real property boundaries. Many changes have taken place since. Properties have been divided due to inheritance and sold out multiple times. In truth, no one in Pakistan should be too sure that they own whatever piece of land they think is theirs. Therefore, the land record computerisation based on existing property demarcation may be a trifle off the mark. The data entered in flashy computers does not matter if it is all wrong. This is a property speculators ‘perfect storm’.
The civil side of the legal system also has its role to play in further muddying these murky waters. There is a pattern in which civil cases go through the Revenue Bureaucracy all the way to the top; from the Tehsildar till the Board of Revenue member for years, until they finally land at the bottom of the Civil Court. All this takes years. On average, the case pendency time in civil cases is intergenerational. It is also said axiomatically and sadly that 90 percent of land ownership is based on who actually holds the qabza on the ground. This huge legal anomaly is accepted as a norm in Pakistan, as some form of perverted reassurance. But is it legal? More importantly, is it moral?
This land speculator and grabber friendly environment is at a high risk of becoming a literal economic black hole. The SC’s decision will eventually come to the media’s attention, creating a perfect recipe for market panic. As Fredric Hayek described, the market behaves like a spontaneous human organisation, acting instinctively. The real estate market’s capital flows may suddenly dry up as the court order and its implications are comprehended. Then panic selling will ensue. This will inevitably result in defaults and foreclosures. This will destroy lives. As the bubble bursts, so will honest people’s honest investments. This economic implosion will not only affect the propertied class, in fact it will be the non-propertied class which is effected the most. The loss of small businesses and daily jobs will be devastating for low income households.
The subprime crisis in the US was mitigated by a bailout package of $168 billion by US government to manage market liquidation. Do we have that kind of money? If not, then it is the responsibility of the Government to work out a solution to solve this impending national crisis. It will not matter who rules Islamabad or Lahore or Karachi or even Peshawar and Quetta. The storm is brewing and it will not discriminate. The state of denial will help no one. The real estate sector needs to be managed through legislation, reform, regulation, taxation and all that can be mustered from the basket of Government actions. I for one dread the day when I will go to a bank and the bank will not be able to cash my cheque, and so should everyone else.
The writer can be reached at [email protected]
Published in Daily Times, May 8th 2018.