19 February 2010

Scandal in the Real Estate Development Market

The dirty secret of Pakistan’s urban development finally got its first public airing the other day. District and Sessions Judge Mazhar Hussain Minhas completed the inquiry ordered by the Supreme Court of Pakistan and has submitted a 115 page report on how a handful of property developers and private housing schemes managed to acquire almost 30,000 kanals of land in and around Islamabad.

The newspaper report I read referred to the acquisitions as “illegal” and equated the practices employed in acquiring this land as with “scenes of land grabbing seen only in Indian films.”

Everyone is familiar with the manner in which private housing schemes have taken advantage of the huge demand for housing and cheap and plentiful labor and peri-urban land. Our cities sprawl out for miles, eating up thousands of acres of agricultural land and rendering even more sterile and polluted as a result. Because they are automobile dependent, their commuting residents add to already chocking traffic congestion and air pollution. Because the houses built in these suburbs are, like all the houses in Pakistan, energy inefficient, they increase electricity and natural gas consumption and stress our already limited energy resources.

But now, confirming rumors that have been whispered for years, Judge Mazhar Hussain Minhas has named Bahria Town, the Defence Housing Authority and Habib Rafique as the main players in the sordid sage of urban development. They are said to have deprived hundreds of people and the state of valuable land in connivance with the police, revenue authorities and even elements in the lower judiciary.

Arif Hasan, in his excellent paper on The World Class City, identified the property developer and real-estate agent as the evolution of the black-marketeer in our globalized world. According to Hasan, when the WTO regime kicked in and free-trade became a global mantra, the floor gave out from under the black-market in smuggled goods. Out of a job, the former smugglers and black marketers turned to the next big business that offered big returns and was totally free of government regulation: property development.

It never fails to amaze me how, in this Islamic Republic, it is next to impossible to do anything without relying on someone licenced or registered. If I want to have my teeth cleaned, I have to look up a licenced dental professional. If I want to build a house, I must work with an architect registered with the PCATP or the relevant development or housing authority. If I want an opinion on anything legal, I must refer to a licenced lawyer. If I want to invest in a Rs. 10 share of a company, I have to use a registered stock broker. Even if I want to buy eggs, my shopkeeper has to have a valid licence from his local government. The examples are endless. But if I need to conduct a billion Rupee property transaction, the property dealer involved needs no licence. It seems out laws do not require people who deal in property to have any minimum qualifications or experience. It is as if our laws want the property business to be unregulated.

The situation being as it was, the black market economy morphed, according to Arif Hasan, into property development. The people that once smuggled gold and contraband in and out the country now took their money to the cheap land on the outskirts of town. At the same time, loans from multilaterals like the World Bank, the IMF and the ADB for the purpose of urban infrastructure brought “development” to city centers and, in the process, made them prohibitively expensive to live in. The politics of relocation of the urban poor as a result of “development” is only now being understood. The Bahrai/DHA/Habib Rafiq dealings add their own, unique, chapter to this ongoing saga.

According to reports, these developers misused the Land Acquisition Act, 1894, did not follow its procedures, did not compensate people with the market rates of the land, subdued any criticism by using their private militias (and sometimes even the assistance of local police) and harassed people by filing false criminal cases against them. According to reports, these developers and their brigades of retired army officers had even the means and the reach to manipulate the administration of justice. Judge Minhas is said to have noted that the Revenue Department “was completely under the thumb of” Bahria Town.

These developers have caused harm to the life and property of citizens. By manipulating the Land Acquisition Act, 1894, their acquisitions amount to a fraud on the Constitution of Pakistan. Article 24 of the Constitution prohibits the State from taking the property of any of its citizens save for a public purpose and save under the authority of a law that provides for compensation for such taking. But eminent domain is abused if the so-called “public purpose” is housing the affluent or of compensation is not equitable.

All this happened in the golden days of Pakistan’s property boom. It was no surprise that, at the time, property developers made hay. Many were even, like in the case of Lahore’s Town Nazims, covering their bases by becoming part of the political setup. Personally, I can only regret not having seen the shenanigans for what they were. So often, what goes wrong in the world is on account of the fact that right thinking people keep their mouths shut.

What the submission of Judge Minhas’ report makes clear, however, is that it is time to reform the property business in Pakistan. We must not allow people to live out their dream of building and owning a house to be built on the blood and misfortune of others. Already the situation is scandalous. There are, for example, whole villages and hamlets that have been closed by the DHA’s cement walls in the new Phases being built in Lahore. These are the homes of people who refused to resettle, come hell or high water, when the DHA behemoth along with its version of Enlightened Pakistan.

Like the case of Charrar Pind, now in the heart of Lahore’s DHA, we must not let urban development deprive others of their livelihood. Charrar was a little village on the outskirts of what was once the Kot Lakhpat Reserved Forest. It was gradually surrounded by the Lahore Cantonment Cooperative Housing Society and its successor, the DHA. It’s people were compensated, but not given any opportunities to integrate with the new high-income residential economy. If someone knew how to drive a tractor, he probably got a job as a driver. If one was a sharecropper, they could eek out a living as a gardener. Many women found jobs as maids. Now, there are check posts outside its entrances, as they are on all the entrances and exits of high-end residential schemes, and domestic staff employed in DHA now needs to be registered. Whenever there is a crime in DHA, the people of Charrar are generally held to blame. We must not let urban development exacerbate social inequality and the gradual criminalization of its victims.

It is time to regulate the property business. It is time to ensure that those who trade in property, who earn commission from its sale, are competent and qualified. This, among other things, is the most important step to take. There needs to be a real estate practitioners council, just like there is a Medical and Dental Practitioners Council and the Pakistan Bar Council, that will monitor and enforce the activities of its members.

It is time to bring clarity into our property law. It is time to make the process resulting in the registration of title simple. If we can make the sale and purchase of land easy and outside the grips of manipulators and frauds, we can unlock the massive potential these frozen assets have.

It is time to think about what development means. It is time to stop spending money on the minority elite and begin designing our cities so that they can act in the aid of the many millions who deserve a better quality of life. We must start investing in public transport. Provincial Government money must be directed towards sanitation and sewerage programs. Local governments need to find means of unlocking the potential of the urban economy.

It is also time to sit down and reflect the damage that has been done, not just by the developers named in the Judge Minhas report, but by ourselves, as residents of cities that create the market for such monsters.