Arif Habib, Yunus Brothers, Dolmen and Silk Bank: Land mafias, conflict of interest and questionable track record behind Pakistan's most awaited REIT.
The project just might succeed.
Bloomberg announced Arif Habib Dolmen REIT Management (Private) Limited - the name is a mouthful - is launching privately placed REITs by purchasing land from Silk Bank.
Pakistan is set for its first real estate investment trust in more than six years as Prime Minister Imran Khan seeks to stimulate the economy through a construction boom.
Arif Habib Dolmen REIT Management Pvt. plans to raise 8 billion rupees ($51 million) via private placements in two REITs for a housing project in Karachi, Muhammad Ejaz, the firm’s chief executive officer, said in an interview Tuesday.
There are two REITs.
Silk Islamic Development REIT will focus on commercial and apartment buildings. The 5 equal shareholders are Yunus Brothers Group (that owns Lucky Cement), Liberty Group, Arif Habib, Fatima Group, and Arif Habib Dolmen.
Silk World Development REIT will focus on developing villas. Bloomberg is silent on its shareholding pattern but mentions it includes real estate developer World Group.
The Bloomberg piece is thin on details. The REIT has been in the works for a while. Initially, it was supposed to be a single REIT, but it appears that it has been structured into two REITs now. One reason could be that the equity investors of the commercial and apartment component saw Arif Habib's Naya Nazimabad and realized that they don't want to be part of the villa projects.
Breaking every rule in the rule book for acquiring Naya Nazimabad land
Before we come to the current project, let us see how Arif Habib and AKD acquired and converted the land of Naya Nazimabad. Arif Habib and AKD broke every rule in the book. The contraventions include
listed companies’ takeover ordinance
illegally converting mining land to residential land
building housing on contaminated land
ISLAMABAD: The flawed privatisation of a state owned cement company, allegedly manipulated by hawks of the stock exchange, has caused a loss of over Rs100 billion to the national exchequer, The News has learnt.It has also exposed more critical shortcomings in the privatisation process led by previous governments.
According to details, the old Privatisation Commission had sold the Javedan Cement Limited (JCL), with over a thousand acres of land, to a private consortium in September 2005 for just Rs4.3 billion, without properly assessing the value of the company’s massive land assets.
However, the buyers, Haji Ghani and Shunaid Qureshi, knew exactly what to do with the cement company as they almost immediately stopped production and converted 1,300 acres of JCL land into a posh housing society worth over Rs100 billion. In doing so they not only violated relevant rules but also exposed the residents to serious health hazards as the land is polluted with a carcinogenic element owing to its prolonged industrial use. This was despite making statements to the press at the time of JCL privatisation that they would continue the cement plant and make it a more viable project by putting up 100 MW power.
Experts believe the cost of total JCL land including mining land could easily cross Rs200 billion. According to inside sources, the proper fees to convert this land for residential use were not paid to the Sindh Government. According to Arif Habib, the current largest shareholder of the company, this land was directly given to them by the Commissioner, completely bypassing the Sindh Government.
It is interesting to note that Shunaid Qureshi and Haji Ghani managed to transfer to Arif Habib and Akeel Karim Dhedhi a majority of Javedan shares while dubiously sidestepping the requirements of the “Listed companies Takeover Ordinance 2002”. Habib and AKD did not have a tender offer for other shareholders while they took over the Company. Inside sources say that the Securities and Exchange Commission of Pakistan (SECP) overlooked the gross violation of Ordinance under the chairmanship of Muhammed Ali who is known to be AKD’s man. However Muhammad Ali denies this.
Sources said the housing society known as Naya Nazimabad has also managed to get hundreds of acres of JCL mining land converted into residential land during the PPP government. Surprisingly, when the Supreme Court asked for land records in its suo moto notice of such dubious transactions, Naya Nazimabad was not on the list submitted by the Sindh Government in the apex court.
It seems the local Patwari and Mukhtiarkar do not have any records of Naya Nazimabad land allocations and lease changes, raising serious questions about the entire process. The officials of Sindh Board of Revenue are also reluctant to share the details of the land conversion.
Senior member Board of Revenue Shahid Gulzar Sheikh initially promised to share information about the deal with The News. However, soon after getting written questions about illegal conversion of mining land into residential land, he changed his mind and refused to comment on the issue. “I don’t know anything about it,” he said in a decisive tone before disconnecting the call. Later, he did not answer calls by this correspondent despite dozens of attempts.
When contacted, Commissioner of Karachi Shoaib Ahmad Siddiqui said he was also not in the loop about the lease transfer. He added that converting mining land into residential land is not allowed legally but his office has no record of any such conversion. Siddiqui said he had also checked with his predecessors but no such record could be found in the Commissioner’s office.
When asked about the dubious deal, the CEO of Javedan Corporation Limited, Arif Habib confirmed that hundreds of acres of land were acquired along with JCL but claimed that there were no irregularities in the process. “We had beaten the other bidders in a fair competition so it was our right to procure the company,” Habib told The News.
When asked about the illegal conversion of hundreds of acres of the mining lease into housing lease, he said: “I am not aware of this development.” Habib said there was no illegality in ceasing cement business after privatisation of the company as it was the right of buyer to change the nature of business. “The residents of the area did not want us to produce cement anymore as the production was causing problems for them,” he said. Ironically, for this statement by Arif Habib, the area around Naya Nazimabad site possibly including Naya Nazimabad itself is polluted with cancer-causing Asbestos according to an independent environmental report ordered by the Supreme Court of Pakistan. No clean up for this has been done exposing residents to cancer.
The cement company considered redundant by the visionless or possibly corrupt baboos of previous governments became a gold mine for ruthless profiteers who gave false assurances of keeping the plant running.
Experts believe the current value of the land is estimated at 60 million per acre (Rs12,500 per yard). The Privatisation Commission officials of the previous government not only failed miserably in assessing the real value of the company but also turned a blind-eye to the post-privatisation irregularities on the part of buyers.
When contacted, the officials of the new Privatisation Commission refrained from answering the key question on the illegal conversion of company’s mining land into residential land. “Privatisation of Javedan Cement was carried out in an open, fair and transparent manner. Javedan Cement was not privatised at throwaway price,” the Commission’s spokesman said. He claimed that Javedan Cement land assets were not assessed at below market price.
According to Javedan Cement Annual reports and submissions they refer to the Naya Nazimabad land as leased land for 99 years at some points and freehold land in other submissions. Not only that no detail is given of any industrial clean ups as required for such a site internationally. Also there is no answer on how mining leases converted to residential leases without paying proper fees.
Regulators, as always, were sleeping.
DMKM @2paisayArif Habib, Yunus Brothers, Dolmen and Silk Bank: Land mafias, conflict of interest and questionable track record behind Pakistan's most awaited REIT., by @2paisay https://t.co/XLYCnw6zTq
Karachi rains of 2020 and Naya Nazimabad
The rains of 2020 laid bare that the project management capacity of Arif Habib Group, which was nowhere to be found when the society flooded.
Also, do click on the below thread on how Naya Nazimabad flooding was caused by blocking the natural drainage by developers of Naya Nazimabad. It is a must-read.
It turns out that the project is built over a natural lake.
Engineer Abbas Raza, a resident of Naya Nazimabad, claims that town planners had suggested the Naya Nazimabad management to construct houses on the banks of the water body.
"What they did was that houses were constructed at the lake site," Raza told Samaa TV. "Water from around 20 square kilometre area used to be drained into this lake."
He said the Naya Nazimabad management blocked all those water channels by building walls. Raza says the houses located at the site of the lake would be inundated each time it rains up to 100mm.
Mohammad Ejaz, the director of Javedan Corporation Limited that owns the Naya Nazimabad land, denies the claims. "This is not at all like that," he told Samaa TV. "Whoever told you this is definitely unaware of the entire plan.
People lost their belongings. However, Muhammad Ejaz was living on a different planet.
Naya Nazimabad Executive Director Muhammad Ejaz thinks otherwise. He said that a single incident can’t tarnish the image of a society that is “second to none” in the country. He also brushed aside the concern that the foundations of the housing units might have been affected due to the water accumulation.
Dolmen group has expertise and reputation when it comes to commercial or office buildings. This is the reason Dolmen is associated with the REIT that is building the apartments.
Grove Residency is another recently launched project of Dolmen Group. I was guessing at the time that it may be part of the amnesty scheme. Eventually, it turned out that the project is part of the amnesty scheme.
DMKM @2paisay“This is an ideal and rather lucrative way to whiten money.” Construction take-off: Saving grace https://t.co/maRNTEIFQ6
What I like about Grove Residency is that they have already lined up Habib Islamic Bank to provide mortgages. This helps the developer arrange financing for the construction because the bank providing construction financing can rest assured that as soon as the building is completed, the construction loan will be repaid from mortgages. Moreover, the developer is not to relying on purchasers making regular deposits. This ensures that the building is constructed on a timely basis.
The new REIT project due to its location will be targeted towards middle-income buyers. There is a NAPHDA component to it too. It will be interesting to see if any financial institution is providing mortgages.
The World Group
For the villa REIT, Arif Habib has chosen to partner with The World Group. On their website, World Group lists Saima Arabian Villas and ASF Arabian Vista as their projects. This is what Dawn's fearless Naziha Syed Ali reported
On July 12, 2017, a strongly worded letter landed on the desk of Director General Sindh Building Control Authority (SBCA), Agha Masood Abbas (since retired). It was from the then deputy director general of the Airports Security Force (ASF), Brig Imran-ul-Haq Rao.
The brigadier’s ire had been provoked because SBCA had issued a show-cause notice to the ASF a few days earlier, ordering it to stop “all illegal sale, booking and advertisement activities at once” on its Arabian Vista project in Karachi. The notice directed ASF to revert to SBCA within three days to explain why action should not be taken against it because it had undertaken the aforementioned activities without obtaining the required permissions from SBCA.
In his letter, written in response to SBCA’s show-cause notice, Brig Imran harshly asserted that the ASF operated under the Pakistan Army Act, that its housing projects were launched under the ASF Foundation (ASFF) with the approval of the federal government and did not fall under the SBCA. He denounced the show cause notice as “regretful”, “uncalled for” and “outrageous”.
“We hereby strictly call upon you to immediately restrain from making any such publications that damages and harms reputation of prestigious against [sic] ASF Housing Project,” concluded the brigadier.
However, underneath the self-righteous posturing on both sides is a sordid saga that is sadly typical of Karachi. Hundreds of construction projects in this city are of highly questionable provenance, the product of collusion between rapacious political bigwigs, establishment figures, their front men (the builders) and a venal land bureaucracy — in short, what is commonly known as the land mafia. By hook or by crook, it seems that everyone wants a slice of Karachi’s precious real estate.
ASF Arabian Vista and Saima Arabian Villas, which together occupy a chunk around 270 acres off Surjani Town Link Road in North Karachi, are a textbook case that illustrates the role played by all the moving parts in this racket.
ASF’s biggest project, ASF City, is planned on no less than 3,000 acres. The market price of land here is at least Rs10m per acre. Why does a force of less than 9,000 personnel need such huge ‘welfare schemes’?
The projects appear to be independent of each other, but they have a common genesis. Around 12 years ago, Mehmood Trunkwala, the owner of World Group Pakistan, who was said to enjoy close ties with then chief minister Arbab Rahim, began taking possession of land in the area in bits and pieces. World Group then partnered with Saleem Zaki, the well-known — and recently deceased — owner of Saima Builders, and the Saima Arabian Villas project began coming up on this piece of real estate.
Over time, this land grab expanded further. Some of the land, according to a source well acquainted with real estate shenanigans in the area, was obtained from another encroacher named Sheroo who had built a fortune from his garbage sorting depots near the Jam Chakro landfill. Satellite imagery shows the land occupied by Saima Arabian Villas as measuring around 230 acres.
A couple of years back, World Group brought ASF on board as a partner. It was a win-win situation: the security force was looking to enter Karachi’s real estate market, and its clout made it an ideal partner in a project with extremely dubious credentials. That was how the 40-acre ASF Arabian Vista was conceived. The ASF Housing Scheme website markets it as “a grand apartment complex comprising of three, four and five rooms in Karachi”.
To reach ASF Arabian Vista, one can either drive through Saima Arabian Villas or access it through its own entrance on the Surjani Town Link Road near the Jam Chakro landfill. A recent visit to the site shows that the main entrance, clubhouse and model apartment are nearing completion. The falling out with SBCA is clearly over.
For his part, Mr Trunkwala said that ASF’s contribution to the project is its “brand name”, as well as provision of lifetime management and security. Acknowledging that “title is the most important component in any housing project,” he added: “Mash’Allah, where Saima Arabian Villas and ASF Arabian Vista are concerned, it is totally perfect and up to date.”
However, the digitised land record on the Sindh government’s Board of Revenue (BoR) website (sindhzameen.gos.pk) tells a very different story: it shows the area on which ASF Arabian Vista is coming up and where Saima Arabian Villas stands as being sarkari (government) land. The builders have not met the basic condition of a legitimate real estate enterprise, ie title to land.
Interestingly, the relevant BoR record, has suddenly gone missing from its website. It remained inaccessible until this story went into print.
Land owned by Silk Bank, which in turn is owned by the Finance Minister
The REIT plants to purchase land from Silk Bank for this project. The land was handed over Silk Bank under debt property swap i.e. in settlement of defaulted loan. Silk Bank is owned by the current Finance Minister Shaukat Tareen and his brother Azmat Tareen is the CEO and President of the bank. Any profits from this land sale will mean higher profits in the pockets of the Finance Minister.
The land is carried in Silk Bank accounts for Rs.9 billion as per (Sep 2020 financials)
The location of the land is right next to Saima Arabian Villas
The big question is does this land allow for apartments, villas or commercial blocks? Not that such a small legal issue of zoning has ever prevented Arif Habib or The World Group from developing and selling housing projects. This time Arif Habib has even brought NAPHDA on board by promising around 600 housing units for PM’s Naya Pakistan Housing Program.
Arif Habib Dolmen had created Pakistan’s only REIT in 2015 and the industry, which had gone silent since then, is reviving now on Khan’s incentives and regulatory changes. Pakistan is willing to forgive tax evaders if they invest in construction projects, while banks have been asked to increase their outstanding mortgages by at least 5% by December.
I think Bloomberg is having fun when it calls them "incentives and regulatory changes" as immediately afterwards it describes the regulatory changes as forgiving tax evaders. "Evaders" is hyperlinked to the below news item on the Bloomberg page.
Pakistan has been revising rules to make REITs more attractive for investors and developers. Finance Minister Shaukat Tarin in his budget this month lowered the dividend payment tax on REITs to 15% from 25%.
“The government has chosen the right sector for growth,” Ejaz [CEO of Arif Habib Dolmen] said.
Sponsors are close to every government
It does not matter whether the PPP, PMLN, PTI, or a military is running the government. Nor does it matter if the flavor of the month is anti-corruption drives or increasing the tax net. These real estate developers and stock market brokers endear themselves to every government by singing their praises and get all the exemptions on the side by having tax amnesties, the longest-running state-sanctioned money laundering scheme and other incentives to revitalize the capital market. Arif Habib and AKD are some of the loudest supporters of the amnesty scheme and are the closest advisors in the corridors of power. The conflict of interest is written all over it. His Javedan consortium is the likely winner of Phase I of RUDA. Earlier he was the member of RUDA alongwith AKD.
“Of three, Javedan’s financial bid was more than the other bidders--Bahria Town and Metracon,” Ameen added.
It is pertinent to mention that Javedan Corporation, a lead partner of the Javedan consortium, is a subsidiary of the Arif Habib Group of Companies. And the name of Mr Arif Habib was mentioned on top in an official notification as member of the Ravi Urban Development Authority.
“In exercise of the powers conferred under section 4 (4) of the RUDA ordinance 2020, the Punjab government is pleased to appoint Mr Arif Habib (Arif Habib Group), Mr Aqeel Ahmad Dhedhi (AKD Group), Mr Iftikhar Ali Malik (Guard Group of Companies), Planning and Development Board Chairman, Housing Department Secretary, Mr Javed Salim Qureshi (Pakistan Engineering Council Chairman) and Mr Kalim Ahmad Siddiqui (Pakistan Council for Architects & Town Planners) as members of the authority for a period of three years,” reads a notification issued on August 6 last year by the Punjab government.
However, after one month or so of the issuance of notification, Mr Habib resigned from the membership so as to avert any controversy or any conflict of interest.
“He (Mr Habib) had resigned last year—probably a month or so after notification’s issuance,” the RUDA CEO clarified. “And since he is no more member of the authority, there is no conflict of interest in this regard,” he said.
You can realize how immune these developers are that they have no shame in using the name Javedan (which will always be associated with the illegal conversion of cement factory land to residential land) as the name of their consortium.
Game changer for real estate and capital market
There you have it. A game-changing development that will bring sophistication to both the capital market and the real estate sector, brought to you by such august business titans as Arif Habib, AKD, Yunus Brothers, Dolmen, Fatima Group, Finance Minister owned Silk Bank, and The World Group. The success of this venture means that Prime Minister can claim 600+ housing units delivered under NAPHDA for his Naya Pakistan Housing. The bank owned by the finance minister which has been in the red for a while may be able to realize a profit if this transaction goes through.
Will the project deliver? It should if such big names are involved in it.
Disclosure: I am biased. I know someone who ran from pillar to post to get his house constructed in Naya Nazimabad despite paying in full to Arif Habib and then had to do it again to get a refund.