Industrial and shipping activities at the Gwadar Port have yet to reach meaningful volumes. (For an assessment of current conditions in Gwadar, see: “Where Gwadar Stands Today.”) The city’s real estate market, however, is gaining steam once again. Whether this is another speculative boom-bust cycle remains to be seen. The success of Gwadar’s real estate remains dependent on industrial and shipping activity at the port and an inclusive development framework that eases the drivers of insurgent violence. But there are indicators — including the potential involvement of Chinese private equity firms — that this current cycle might play out differently.
The First Boom-Bust Cycle
The first major bubble in Gwadar real estate was from 2003-2008, triggered by the China-financed first phase port development and construction of the Makran Coastal Highway, which connects Gwadar to Karachi — Pakistan’s largest city. This period was marked by high levels of speculation and fraud. An investigative report in the June 2008 edition of Pakistan’s Herald magazine described the Gwadar real estate market as “one of the biggest land scams in Pakistan’s history.” Land was illegally allotted to influentials and developers from other parts of Pakistan. Additionally, investors from other parts of Pakistan were sold non-existent plots of land. Property values plunged by 2009 as a result of the stagnation of the port’s development and an overall terrible investment climate due to political instability and terrorism.
In January 2013, a Chinese company, China Overseas Ports Holding Company, assumed the lease for the Gwadar port operation contract. By the late summer, real estate advertisements showcasing Gwadar opportunities returned to television screens. Land values in Gwadar have since surged. According to Pakistani real estate portal Zameen.com, list prices of residential plots Gwadar grew by 242 percent from March 2016 to April 2017, though the pace of buying, and presumably values, has since eased. Alongside a rise in real estate values, local officials and Gwadar have become more conservative in offering conditional approval for real estate projects and are taking steps to digitize land records, reducing the potential for fraud.
In recent months, a few new developments have entered the Gwadar real estate market. They’re unconventional when it comes to Pakistan’s real estate scene and indicate how the city’s demographic and real estate composition could end up looking quite distinct from others in Pakistan.
Presently, there are over 20 residential real estate projects that have been given clearance (i.e. a no-objection certificate or NOC) by local authorities in Gwadar. I’ll take a look at three interesting projects by two developers. But before that, it makes sense to offer a survey of Pakistan’s broader real estate sector. If you already have a solid understanding of the industry, feel free to skip this section.
An Overview of Pakistan’s Residential Real Estate Market
Real estate is an active sector in Pakistan with high turnover rates on land plots in private developments. Demographics play a key role in driving the market. Pakistan has a fast-growing population, an expanding middle class, and a large diaspora. But real estate has also been a convenient way to “park” and “clean” money that is kept off the books or out of the tax net — though that has been made more difficult by tax and land valuation reforms since 2016.
Still, the fundamental dynamics of residential real estate in Pakistan largely remain the same. The average plot of land in a private development is likely to be sold multiple times before a home is actually built on it. These individual plot sales will take place over the course of both the construction and operations periods of the broader development’s life cycle.
The most exclusive areas in Pakistan’s largest cities are generally army-owned and managed housing society branded under the Defense Housing Authority or DHA. But there are a growing number of private developers that cater to a broader, somewhat less exclusive demographic. Most important among them is Bahria Town, owned by the politically connected Malik Riaz Hussain.
For wealthier Pakistanis, planned, gated communities provide a similar allure for Americans who moved to the suburbs in the 1950s and 1960s: they serve as an oasis from the chaos of city life and offer reliability in service delivery (such as electricity and sanitation). Developers like Bahria Town are constructing mixed-used developments that resemble cities within cities.
‘Luxury’ Real Estate Comes to Gwadar
Gwadar’s residential real estate is catering to a different demographic. The city’s indigenous population is small and their living conditions are humble. Essentially, a new city is being built for a new population. While the DHA in Karachi might attract the family of a professional who once lived in a middle-class Karachi area like North Nazimabad or Gulshan-e Iqbal, the typical occupant of Gwadar’s new real estate is expected to be incoming professionals from Pakistan’s other provinces as well as China, not intra-city or intra-metro area migrants.
Gwadar’s real estate market is likely to differentiate itself from the typical Pakistani metro area. And so the target audience for Gwadar real estate is not just the typical Pakistani investor who aims to flip a vacant lot, but also those who’d like to earn passive rental income (by leasing a built home to incoming professionals) and those seeking something akin to a vacation home (there’s a potential rental play here as well).
Here is a look at some interesting developers and projects.
China Pak Investment Corporation
About the Company
China Pak Investment Corporation (CPIC) is the newest large-scale developer in Pakistan’s real estate market and the flashiest. The face of the company has been Zeeshaan Shah, a former contestant on the British edition of The Apprentice, whose company, One Investments Global Limited, serves as the “master-agent” for CPIC’s two real estate projects in Gwadar.
CPIC is described as a “private investment house.” It’s unclear where it is registered or who are its major investors, but the composition of its board may give indication of the latter.
The company’s board members include:
- Ryan He, who is described as the head of a Chinese trade association and an advisor to Chinese “think tanks,” but is also reported to have been (and perhaps remains) involved in the private equity-sovereign wealth industry in China;
- Lt. Gen. Sabahat Hussain, a retired Pakistan Army officer;
- Rear Admiral Pervaiz Asghar, a retired Pakistan Navy officer;
- and Danial Schon, a Dubai-based member of one of Pakistan’s wealthiest families.
A disclaimer on a CPIC brochure also mentions Heritage Resources Ltd., which is a Chinese private equity company whose business activities appear to focus on frontier markets and Iran.
The construction partners for CPIC’s two projects in Pakistan are Chinese state-owned enterprises: Top International Engineering Corporation (the foreign arm of a Chinese state-owned company, Shaanxi Construction Engineering Corporation Limited); and China Civil Engineering Construction Corporation.
CPIC inadvertently created controversy last fall when it launched the “China Pak Hills” development in Gwadar. It made two mistakes in its initial launch: one relating to the demographics, and the other relating to the project name.
In its first press release, CPIC stated that it “will be developing the first of its kind $150 million gated master community tailor-made for the expected 500,000 incoming Chinese professionals expected in Gwadar by 2022.”
The wording here is clumsy and reflects a lack of understanding of the socio-political sensitivities surrounding the city’s demographics. Perhaps CPIC meant to claim that it would cater to a portion of the incoming Chinese expatriate workforce, which some entity or person estimates will number 500,000 by 2022. CPIC provided no sourcing for the estimate, which is entirely implausible and fueled reports about Chinese “colonization” of Pakistan.
According to Pakistan’s 2017 census, the population of the Gwadar tehsil is 138,438. So the influx of 500,000 Chinese nationals would result in the foreign-born population outnumbering locals by more than three-fold. The population as a whole would jump by at least 360 percent in just five years. Today, Gwadar can barely supply water to its residents. There is no indication that the city is building a physical infrastructure that can handle such a population surge within that time. Indeed, Pakistan’s Planning Commission — the chief coordinating body on CPEC — said that the population figures cited by CPIC are “highly exaggerated.” It also said that there Gwadar authorities have not issued an NOC for a real estate project named “China Pak Hills.”
CPIC claims that it had an NOC for a real estate development named International Port City and requested the name to be changed to China Pak Hills. There’s no independent confirmation that a name change was requested, but an NOC for the International Port City project was indeed acquired in March or April 2017.
In early 2018, China Pak Hills was relaunched with what appears to have been the original name, International Port City, with a valid no-objection certificate. Several months later, it launched another project, China-Pak Golf Estates, which also has an NOC. CPIC appears to have purchased the NOCs from other developers — a permissible transaction. It’s unclear how changes to the project design might impact the status of the NOC.
What’s different about CPIC’s projects is that they’re focusing on foreign investors — mainly, but not exclusively, the Pakistani diaspora in Britain and the United States.
CPIC launched a bus advertising campaign in London and brought out British-Pakistani boxing star Amir Khan as a promoter for the International Port City project:
Khan’s wife, Faryal Makhdoom, has also participated in promotional activity for the project:
The International Port City project and China-Pak Golf Estates are two distinct projects. Both are located in the northern part of Gwadar, adjacent to the N10 highway connecting to Karachi, but about five to ten miles from the Arabian Sea coast and 15-20 miles from the port area.
The International Port City is described by CPIC as a “$150 million mixed-use gated development.” In addition to residential homes, the development will include a cinema, five-star hotel, high school, medical center, and shopping mall.
The China-Pak Golf Estates, according to CPIC, is a $265 million project.
They are, by no means, Pakistan’s most expensive real estate developments. For example, Egyptian billionaire Naguib Sarwis is partnering with Pakistan’s Saif Group and Kohistan Builders on Eighteen Islamabad, a $2 billion luxury development just outside Islamabad.
But compared to real estate projects elsewhere in Gwadar, plots in these two CPIC developments are being offered at a premium. A 125 square yard residential plot in the International Port City project is being sold for £14,000 or RMB 122,000 — just over $19,000. With infrastructure charges, the total is £18,635 or around $25,000. That’s roughly three times the rate of a plot in the nearby Green Palms project by Pakistani developer Rafi Group.
It isn’t exactly clear what’s the basis for CPIC’s premium. It could be producing a better product that will appeal to a foreign audience accustomed to certain amenities and with higher demands for security.
The brochure for the International Port City project depicts a fashionably dressed Chinese couple walking along a main boulevard lined with palm trees and multipurpose buildings. The company’s promotional material suggests the future Gwadar resembling Dubai or Shenzhen:
CPIC is marketing its products to non-Pakistani investors, but its prime target customer is the Pakistani diasporic community who would flip a vacant plot as-is or build a home and rent it out to migrant skilled labor. According to CPIC’s promotional material, they estimate more than a 300 percent return on investment after three years just for the land. As passive rental income (for a fully constructed home), the annual returns would be around 33 percent.
According to CPIC, the first phase of the International Port City project is sold out.
This spring, the Consultants Group, through its subsidiary CG Holdings, launched a unique project in Gwadar called Oshun by Eiwan. It may be the first beach resort-style real estate development in Pakistan.
Some major Gwadar real estate developments are clustered along the Makran Coastal Highway on the city’s northern edge. These include CPIC’s two projects as well as Rafi Group’s Green Palms and Habib Rafiq’s Gwadar Golf City. But Oshun by Eiwan is located right on the Arabian Sea coast in Gwadar’s West Bay area.
The Consultants Group is an experienced provider of architectural and engineering services in Pakistan. It developed the master plan for the Sanghar Housing Scheme, Gwadar’s first planned community, which is operated by the local Gwadar administration. The Consultants Group lists an NOC on their website, but it does not correspond to the list of NOCs made available by Gwadar authorities.
Chinese expats appear to figure into the Oshun business model. As one of its promotional brochures states: “Put simply, Chinese expatriates, Pakistani workers, and Gwadar locals will need a place to live and work in the city.” But, in this video below, they are targeting Pakistanis who’d like a break from the hustle, bustle, and congestion of city life.
A 200 square yard plot in the Oshun by Eiwan is being sold for PKR 1,200,000 or just over $10,000. That’s about a third of the rate for a plot in the International Port City.
Making Gwadar Real Estate Work
The short-term returns on investment being forecast by real estate developers in Gwadar are within the realm of possibility. But they are ultimately contingent upon the same factors as longer-term plays:
- alignment with the city’s master plan, the revision of which has yet to be approved;
- the provision of reliable and affordable electricity and water;
- business in the port and industrial zone picking up, drawing in skilled labor;
- the provision of security in the broader Gwadar area as well as within individual real estate developments;
- and the buy-in of both locals and Pakistan’s broader political stakeholders for the Gwadar and CPEC plan.
These five factors are interrelated. Realizing the political demands of Gwadar locals and meeting their needs through better service delivery will weaken drivers of insurgent violence. But these elements need to be incorporated into the final Gwadar master plan. And real estate developments should be in compliance with the final master plan.
While Gwadar authorities appear to have temporarily suspended granting NOCs to developers until the revisions to Gwadar’s master plan are complete, properties for approved projects continue to be sold by developers. Construction has also begun. Will real estate developers comply or be made to comply with the revised master plan?
Gwadar authorities have informed me of plans to protect the economic and political rights of the local indigenous population. But these measures do not appear to have been made public let alone implemented. This must precede a real estate gold rush and the influx of economic migrants. Real estate developers must be cognizant of the fear of locals of being made into a demographic minority and work to ameliorate those concerns in their communications. Developers also need to have a comprehensive social responsibility component in their business models and be mindful of the demographic sensitivities. Furthermore, the influx of capital into Gwadar ought to involve a redistributive component — one that goes beyond providing locals short-term jobs. In the case of real estate, officials in Balochistan should consider a property tax or levy that becomes part of a broader basic income program for Gwadar’s indigenous population, redistributed through direct cash transfers.
As I wrote last week, making Gwadar work will require “social interventions and market forces working in synergy” to address the fundamental needs of its indigenous population and make locals the greatest relative beneficiaries of the city’s development.
Updates on the China-Pakistan Economic Corridor and Belt and Road Initiative.