Sleeping with the enemy: PTI, Bahria Town and Naya Pakistan Housing in Malir
NAPHDA is playing the role of matchmaker facilitating a marriage of convenience between two completely incompatible partners.
This is a long piece. If you are receiving it over email, it may get clipped. If that is the case, please click on the headline above to read it on the website.
Honest to god, I came up with the title a few days ago before the memes went viral.
Never in the 75-year history of Pakistan has so much been paid to so few for doing so little
— aap ka bhai on NAPHDA
Executive Summary
In this post, I write how NAPHDA with a budget of Rs. 1 billion per annum, and enabling two salaries to a serving general and a brigadier, is acting as an arm of Bahria Town by signing an MoU, which is just a piece of paper with no legal standing, for a project on a piece of land that came into Bahria Town’s possession illegally. By mentioning this MoU in the Supreme Court, NAPHDA allowed Bahria Town to avoid the penalties that otherwise would have been imposed by Supreme Court.
It is a sign of desperation of PTI, a party that stands for justice, accountability, and transparency, that it is assigning its flagship affordable housing project to the second-largest land encroacher and that too on the aforementioned illegally acquired piece of land despite Bahria Town not delivering on an earlier promise made to the PM.
NAPHDA wants Allied Bank Limited to extend a loan to this project. In the unfortunate event that Allied Bank actually extends the loan, they will be out of their jobs in two years and most likely behind bars.
Finally, I wonder if this is a charade by Bahria, enrolling NAPHDA in the scheme, to skim Rs.900 million subsidy from the Government of Pakistan.
Desperate PTI
In his latest opinion piece, Fahd Husain said that PTI is desperate to deliver on schemes and projects to reverse the perception of its inability to govern.
From the government’s side, there is a sudden re-focus on projects that can deliver better governance to the voters. The PTI leadership has realised belatedly that the perception about its incompetence has taken firm root among the electorate and will extract a steep price in the next elections. It is a perception whose presence the party will never acknowledge publicly but the politically savvy men and women in government know that closer to elections, perceptions become far more potent than reality. This is one reason why Prime Minister Imran Khan has now aggressively started to personally launch various schemes and projects aimed at reversing the perception that his government does not know how to govern.
In Islamabad’s federal secretariat there is a greater urgency to get things done. The pressure from the Prime Minister’s Office is being ratcheted up by the day and cabinet members are also feeling the heat.
PTI, NAPHDA, and Bahria Town
On the same day, Naziha tweeted the following
With the elections around the corner and what Fahd had written, this is par for the course. It is disappointing that NAPHDA couldn’t find a “less tainted” builder to deliver on the PM’s promise of Naya Pakistan Housing.
NAPHDA is an agent of Bahria Town?
The land on which this project is to be built was for an incremental housing scheme as noted by Supreme Court.
The offer was accepted to implement the apex court’s May 4, 2018, judgement which had held the grant of land to the MDA by the Sindh government, its exchange with the land of private developer Bahria Town and anything done under the provisions of the Colonisation of Government Land Act, 1912 by the provincial government illegal and of no legal existence.
The land was granted for launching an incremental housing scheme, but the MDA exchanged it with Bahria Town to launch a scheme of its own, the SC verdict had regretted.
NAPHDA is acting as an agent of Bahria Town. It represents to Supreme Court that it will sign an MoU with Bahria Town for this encroached piece of land. Doing this will bring relief to Bahria Town from SC’s “harsh” penalties.
In a fresh report moved on behalf of the law ministry, the Supreme Court has been informed of a possible memorandum of understanding (MoU) with Bahria Town (Pvt) Ltd (BTPL) which under a deal with the apex court is to pay Rs460 billion as part of an arrangement to settle the Malir land dispute.
The report said Bahria Town had submitted two proposals to the Naya Pakistan Housing Development Authority (NAPHDA) for construction of low-cost housing schemes in Islamabad and Karachi consisting of 3,000 and 2,000 apartments, respectively.
“The proposals are being evaluated and the NAPHDA is likely to sign an MoU with BTPL in respect of these proposals,” said the report furnished by Additional Attorney General Sohail Mahmood before the SC implementation bench.
Analyzing the Malir Project
By making certain assumptions and information in the below letter, we will work out the project cost.
It is noticeable that the letter refers to Ms. Madiha Arooj, GM, Corporate Affairs, Bahria Town Private Limited four times. It’s as if financing is being requested by Ms. Madiha personally and not on behalf of Bahria Town Karachi.
Assumptions
Sales price
A couple of years ago, when I last checked, the construction cost of an apartment in Karachi was around Rs.4,000 per SF. As per the letter, the apartments that will be built by Bahria Town are almost 700SF apartments. Apartments of this size should have been priced around Rs.2,800,000 two years ago. Since then we have had inflation in costs of cement, steel, labour costs, etc which should take the cost of such apartments to at least, Rs.3 million.
As this is Bahria, we will assume that with the negotiating power that Bahria has over contractors and the economies of the scale that Bahria can bring to bear on the project, Bahria will be able to construct these apartments at Rs.2,600,000.
The letter doesn’t make it clear how much profit Bahria is expected to make on the project so we will assume that Bahria will sell these at cost i.e. Rs.2,600,000. The profit to Bahria will be the subsidy of Rs.300k per apartment that it is getting from GoP (discussed in the next section). At Rs.300,000 per apartment, the subsidy ensures a profit margin of 11.5% and, based on my research, is paid by GoP in advance. PTI is desperate and would have paid it in advance anyway if it believes that Bahria can deliver the project.
Subsidy
The first line in the letter refers to a letter written to SBP about a subsidy. Most likely, it is referring to a subsidy of Rs.300,000 per housing unit that the Government of Pakistan announced in July 2020 on the construction of the first 100,000 low-cost houses.
Prime Minister Imran Khan on Friday announced a subsidy of Rs30 billion for the Naya Pakistan Housing Project (NPHP), urging the construction industry and investors to "take advantage of the opportunity", as the government tries to mitigate the economic impact of the coronavirus outbreak.
"This means a subsidy of Rs0.3 million will be given on the first 100,000 houses constructed," he said, while addressing the nation after chairing a meeting of the National Coordination Committee on Housing, Construction and Development in Islamabad.
Thus, if the project is approved by NAPHDA/GoP, GoP will be providing Rs.900 million (Rs.300,000 x 3,000 apartments) to Bahria Town as a subsidy in advance to construct these apartments.
Land
The 100 kanal land is illegally exchanged land with the Government of Sind. Bahria did not pay for the land to the Sind government. Bahria Town will construct the apartments, sell those to low-income segments of the society and recoup the value of the land from those sales proceeds. We have assumed the cost of the land at Rs.1.5 billion, which sounds about right for a low-cost housing designated plot of land in the Karachi suburbs.
Bank Loan and Mortgages
We will work with two assumptions i.e. base case and aggressive. In the base case, we will assume that ABL will be providing development financing of 50% of the project cost. In the aggressive case, which is a very low probability as it will become clear later, we are assuming that ABL will provide 70% of the project cost as development financing.
Similarly, for the mortgages, we are assuming that low-income borrowers will be getting 70% of the cost of the apartment in the base case, and in the aggressive case, the banks may lend up to 90% of the cost of an apartment as a mortgage.
Project Economics
The yellow cell shows that if Bahria plays its cards right, Bahria will not have to contribute a single penny to construct the project. However, this would mean that ABL is on the hook for the entire construction of Rs.5.4 billion of the project.
No analysis by NAPHDA
In point 2 of the letter, NAPHDA has agreed with Bahria for the quality of construction material to be used and the cost of completed apartments. In point 3, however, it appears that NAPHDA has made no analysis if construction at this price point is viable. The only thing NAPHDA appears to have studied is the suitability of the location. Later, NAPHDA is shifting all the responsibility to the Manager of Allied Bank Limited, who has to
consider all aspects of the project proposal, including the technical, legal and financial information provided. If the project proposal is found to be economically, technically, environmental feasible and the information submitted by Ms. Madiha Arooj, GM Corporate Affairs, Bahria Town Private Limited about its own legal, techinical, managerial and financial capability is satisfactory, the Manager, Allied Bank Limited, Main Shahrah-e-Faisla Branch, Karachi is requested to communicate its willingress or otherwise within 60 days to NAPHDA to provide developement finance to Ms. Madiha Arooj, GM, Corporate Affair, Bahria Town Private Limited for the above mentioned project. In case the bank is of the view that financing is not feasible/possible, reasons thereof may be communicated to the Authority. This letter shall not be construed and presented as evidence of any approval granted by NAPHDA.
Few things to note:
NAPHDA hasn’t granted any approval to BTK.
NAPHDA only found the project suitable from a livability point of view. From the vague language, we don’t know how NAPHDA assessed livability at the location.
NAPHDA displays a total lack of understanding of how development financing works (I will talk about this in the next section). This is an embarrassing lack of professionalism and understanding from an organization that has an annual budget of Rs.1 billion and whose officers are collecting salaries from two places: from the military as well as from the budget.
If ABL refuses to finance the project, NAPHDA also wants to know the reasons for the refusal.
How do banks assess development financing?
I have done many a thread and write-ups on this. Broadly speaking, ABL will be looking at the following aspects:
1. Technical capability
We all know Bahria can build housing.
2. The character of the borrower
This is where Bahria is notorious. Everyone knows Bahria encroaches on the land, the current piece of land being no exception, has the Rs.416 billion penalty overhang, and is overextended in Bahria Town Karachi. Bahria Town is infamous for making late payments to its contractors akin to a Ponzi scheme i.e., the contractor only gets paid for the previous work done when it executes the next piece of work.
Also, everyone who is anyone in power circles of Pakistan from politicians to the judiciary to bureaucracy to the military is in the pocket of Malik Riaz. As a result, despite building the most desirable projects for residents throughout Pakistan, commercial banks do not extend credit to Bahria Town and were wary of extending mortgages till a couple of months ago to buyers of units in BTK.
If BTK defaults, it will be hard to impossible for ABL to pursue BTK for recovering the loan.
3. Size of the loan i.e. ABL’s risk appetite
The Manager ABL of Sharae Faisal branch has to assess if he can provide a loan for a project and a borrower with a reputation like Bahria to the tune of Rs.3.9 billion. In the aggressive case, the loan can be as high as Rs.5.4 billion. That is a huge exposure that ABL is taking on a single borrower and a single project.
4. BTK’s equity contribution
Whereas a low equity contribution by BTK is good for Bahria, it is a risk for ABL. Low equity or no equity in the project means that Bahria has no skin in the game. It gives Bahria the option to leave the project incomplete.
5. Economic feasibility
There are two parts to it.
5A. Can the project be built at the cost that Bahria is saying it will be built?
The basic due diligence NAPHDA should be doing is what can be delivered in Rs.2.6 million and how. Former ABAD Chairman Hasan Bakshi in July 2019 said that it is impossible to build low-cost apartments in the outskirts of Karachi for Rs.3 million. That was 2 years ago. If you add inflation of the last two years especially of cement, steel, fixtures, etc., it is unfathomable how BTK will be delivering these?
A very senior member was planning to build 10,000 flats in Karachi’s outskirts and his intention was to sell it for Rs2.5 million each. Recently, he informed me that he has temporarily shelved the scheme due to unimaginable increase in dollar value resulting in higher cost of construction.
In a similar case, I was planning a scheme with 450 flats costing Rs3 million each. This scheme is again on hold due to the daily changes in construction costs.
5B. Are the apartments sellable?
Will anyone buy the quality of apartments the BTK is building at the sales price? The NAPHDA letter above is just referring to material quality as per PEC specifications. That is not all that is required to assess a project. To wit, under the aforementioned letter, BTK can deliver a single 700SF room without a kitchen and there is nothing in the NAPHDA letter that prohibits BTK from doing so as long as the material quality is as per PEC standards. How is ABL supposed to assess if what BTK is building is sellable?
NAPHDA should have design and architectural standards about the minimum quality of the product such as ventilation, lighting, kitchen sizes, bathroom sizes, open areas, etc. This will determine if low-income borrowers will buy what BTK will be building. There is a possibility that low-income buyers may accept whatever shoddily designed product is being offered to them. However, NAPHDA should have higher standards. They are certainly getting paid for it in perks and salaries.
Though NAPHDA mentions in the letter that it found the site suitable for living, ABL will also be assessing livability of location i.e. availability of infrastructure such as electricity, water, sewerage, transport, school, hospitals, etc.
6. Repayment
This is where the incompetence of NAPHDA becomes crystal clear. Development financing in residential housing is usually repaid from mortgage financing unless the project is being built for investors. When the apartments will be complete in 2 years, just to repay the equity of BTK and principal of ABL (ignoring the interest on the loan now), 2,769 borrowers should be ready with approved mortgages.
Unless ABL has already identified and approved the 2,769 low-income mortgagees or NAPHDA has already approved and guaranteed the mortgages of such borrowers, ABL and BTK are making a gamble that private commercial banks will be ready to provide low-cost mortgages of Rs.5.9 billion to this project alone on its completion. Rs5.9 billion assumes 75% mortgage i.e. low income borrower is putting a downpayment of 25% of Rs.2.6M which is Rs.650,000. I don’t know about the target market and if they have this kind of savings lying around to make a downpayment. In case we are looking at 90% mortgages, commercial banks should be offering Rs. 7 billion mortgages at project completion just to low-income borrowers of this project.
7. Guarantee or comfort
For risky projects, banks look at a guarantee from parent institutions or in the case of government projects, a government guarantee or a letter of comfort. In this case, NAPHDA has absolved itself completely saying that the letter should not be deemed as approval of the project.
ABL is on its own and all the risk is the responsibility of ABL.
Will ABL extend development financing to this project?
Based on the above discussion, I have made a hypothetical checklist:
Based on the above, the only thing that is assured in this scheme is that, in two years, the loan will go delinquent and the senior management team of Allied Bank Limited that approved the loan will be out of their jobs and making regular pilgrimages to NAB and FIA headquarters and possibly be provided food and lodging by NAB/FIA if you get my drift.
Bahria Town taking the Prime Minister for a ride again?
The government is so desperate that it doesn’t remember what was promised earlier or how many foundation laying ceremonies for various housing schemes the PM has attended earlier. In one event, the PM launched 110,000 housing units in a single ceremony in April 2019 in Baluchistan (see picture below. I count seven housing projects). Two years have passed and not one has been built.
Another project for construction of 110,000 units in Quetta and Gwadar, including 54,000 for fishermen, had been started while such projects would be initiated in other cities soon
Doesn’t the PM or the government ever wonder what happened to all those ribbon-cuttings that PM has been doing for 3 years now?
Sometimes I joke that if I don’t keep track of these promises, who will? In July 2019, two and a half years ago, PM launched a low-cost housing project where Bahria Town was supposed to deliver 10,000 housing low-cost housing units in two years.
PM opens housing project for general public - Pakistan - DAWN.COM
ISLAMABAD: Prime Minister Imran Khan on Thursday inaugurated the first housing project for the general public.
The project was launched under the PTI government’s much ambitious programme called Naya Pakistan Housing Project (NPHP) on a piece of land in the Phulgaran area where Bahria Town was already executing its housing scheme.
“The land for the project was provided by Bahria Town on very nominal rates,” director general of the Federal Government Employees Housing Foundation Wasim Bajwa told Dawn after the inauguration ceremony.
Under the project, 18,500 housing units/apartments will be constructed and given to the low-income group on a mortgage basis.
Mr Bajwa said 1,785-kanal land had been acquired from Bahria Town for the NPHP. “Not only the land but Bahria Town’s management will also construct 10,000 housing units in the same area later for NPHP,” he said, adding that the cost of the land would be retired to Bahria Town after sale of housing units.
Mr Bajwa said the project was being executed in collaboration with Bahria Town under Corporate Social Responsibility (CSP). “It is the first housing scheme launched solely for general public under NPHP as previous schemes, under NPHP, were meant for federal government employees with a meagre share of general public with ratio of 70 per cent share of employees and 30pc of general public,” he added.
You can see the logo of the Naya Pakistan Housing on the wall. This is what I said about Malik Riaz getting the above project at the time.
This is what the PM said about the above project in August 2019
Recently, he said, a housing project had been launched on Angoori Road in Islamabad which would be completed in one and half years.
It’s been 2.5 years since that statement by PM. Before sending that letter for Malir project, why didn’t NAPHDA ask Bahria Town about the 10,000 low-cost affordable units that they were supposed to deliver 1 year ago? How can NAPHDA trust BTK to deliver on illegally occupied land when Bahria Town couldn’t deliver units on its own land?
The below news report shows the PM making a speech at the Angoori road launch event. As per the employees of Bahria that I talked to at the time, the audience is the workers and contractors of Bahria bussed in by Malik Riaz.
For those of you who can comprehend big numbers, at Rs.2,600,000 per apartment, a 10,000 unit housing project in Islamabad will require Rs.26 billion to construct. Assuming, the low income buyers can get 90% mortgage, commercial banks should be offering Rs.23 billion of mortgages to the buyers in that project alone, which I can guarantee you is not going to happen, for Bahria to get repaid. Thus, there is no way Malik Riaz is investing/risking Rs.26 billion of his own or investors’ money for a project for which PM Imran Khan cut the ribbon, made a speech and later in another speech stated that it will be ready in 1.5 years. Here we are, 2.5 years hence, and NAPHDA is giving a nod to another project by Bahria without inquiring about that earlier project.
The untouchable Malik Riaz
Malik Riaz had bought off the accountability czar Shehzad Akbar was clear from this fantastic piece of investigative journalism by Naziha Syedali where the criminal activities of Malik Riaz were brushed under the carpet in a cabinet meeting presided by the PM in the name of “national security”.
Malik Riaz & the art of the deal - Pakistan - DAWN.COM
TOWARDS the end of 2019, something unusual happened at a federal cabinet meeting in Islamabad. Special Assistant to the Prime Minister on Accountability Shahzad Akbar was allowed to present a ‘non-agenda item’; he had with him a sealed envelope that he said contained a non-disclosure agreement. It pertained to a multi-million pound settlement that the UK-based National Crime Agency (NCA) had recently arrived at with property tycoon Malik Riaz. According to a source present at the meeting, “[Human Rights Minister] Shireen Mazari objected, saying, ‘What approval are we giving when we don’t even know its contents?’ We were told that if it is opened there are implications for national security and the UK government also has reservations”.
The NCA investigates money laundering and illicit finances derived from criminal activity in the UK and abroad, and in the case of the latter, returns the stolen money to affected states. It seems that Mr Riaz had for some time been the subject of a ‘dirty money’ probe by the Agency. On Dec 3, 2019 it announced a £190 million out-of-court civil settlement with Mr Riaz — its largest till date — adding that it “did not represent a finding of guilt”.
In this country, on the pretext of the non-disclosure agreement, the matter was swept under the carpet.
How can this criminal be given the contract of building a flagship housing project of the Prime Minister who doesn’t tire talking about accountability and transparency?
Defund NAPHDA
The annual budget of NAPHDA as per budget documents is Rs.1 billion in 2020-21.
Serving military officers are working on secondment at NAPHDA.
Those serving on secondment receive the salaries and perks as per regular employees, i.e., they will get two salaries, one from the military and one from the federal government.
What are we getting for this Rs.1 billion per annum?
NAPHDA is giving the green signal for the Rs.900 million subsidies that BTK will be getting. Where are the KPIs and accountability standards for BTK? How will BTK’s delivery be assessed? What if BTK doesn’t deliver as per promise (timelines, quality, quantity, etc)? How will NAPHDA impose penalties, and how will it recover them?
NAPHDA is a supervisory or an overseeing authority i.e. it will not build housing. The entire budget of NAPHDA is a non-development expenditure. A retired general heads it, serving generals and military officials serve in it taking two salaries. Along with other bureaucrats, they have ballooned the budget of NAPHDA to Rs.1 billion per annum.
What are we getting for this Rs. 1 billion?
In sum, despite the huge budget, it seems to have bypassed NAPHDA that they
should set design and architectural standards for low-cost housing,
should have clear procedures and penalties in place to ensure that developers taking the subsidy deliver on their promises and
should have an understanding of how projects of this magnitude are financed and then repaid.
With respect to NAPHDA, the only comment that comes to my mind is
Never in the 75-year history of Pakistan has so much been paid to so few for doing so little
Earlier, Malik Riaz was known to have retired Generals and Brigadiers in his pocket as the below ad testifies.
But the latest letter of NAPHDA, the reason for this entire post, hints that the serving Major Generals and Brigadiers aren’t immune either.
Truly a shame that they are earning the salaries and perks from two sources yet can’t do justice to even one job
Other key questions
The NAPHDA letter states that the project has started. It is a Rs.7.8 billion project. Deducting the subsidy and the land cost, the cost to be funded is Rs.5.4 billion. Does this mean that if funding from ABL does not come through, Malik Riaz will build the entire project from his equity and/or by delaying payment to contractors?
With or without ABL financing, mortgages to end-users are what will pay Malik Riaz for building this project. Malik Riaz isn’t naive to build a project that relies on its success on almost 3,000 mortgages offered for a single project. Is the real plan of Malik Riaz is to eventually sell these apartments at market rate and pocket all the profit?
Did Asad Umar make the below claim relying on Naya Pakistan Housing project to be built by Bahria Town?
Couldn’t the clean and transparent PTI government find any less disreputable builder to build its flagship project on a piece of land that is not illegally acquired?
Finally, is this just a charade by Bahria to get hold of the Rs.900 million subsidy?
If you are interested in reading more about the fraudulent roots of Bahria Town Karachi, please read the below post.