I have already written a very detailed post about Malik Riaz and his shenanigans at Bahria Town. I have also tweeted about it a lot. However, I keep getting inquiries from friends and colleagues asking me if it is a good investment.
How do you analyze if anything is a good investment? When you ask what will you get in return for what you are paying for. So for Bahria Town, we will be paying Rs.15,000 (5,000 registration fees plus 10,000 credit towards first installment). What will you be getting in return? No one knows. The location of the project, size of the project, sizes of plots, price of the plot, number of installments etc is all guess work. Rather guess work is limited to location of the project. With respect to the rest of the information, no one has a fking clue.
So it is pretty hard to tell if it will be a good investment.
But what do we know about it. We know that we will be paying Rs. 15,000 per application. People are submitting 2 to 3 applications each and investing from all over the world. So I estimate that there will be 100,000 applications which I think is pretty conservative considering the hype surrounding it.
I did some back of the envelope calculation.
- At 15,000 per application, that is Rs.1.5 Billion for 100,000 applications.
- Lets assume that processing and booking and balloting and allotment etc takes a while. Can take up to 6 months but conservatively assume it will take 3 months
- Assuming he has negotiated a rate of 8% interest, Rs. 1.5 Billion in the bank will earn him Rs.30M in 3 months
- Add to it, Rs.5000 per application that he will not be returning and that is another Rs.500M
- So that makes a total of Rs.530M
- Deducting around 50-75M that he spent on advertisement, and that leaves him with Rs.455M
- Not a lot of money for him but still a handsome amount as it comes with no strings attached.
- If we add money he will be getting from other two projects and probably he might be able to get upto Rs.600M of money absolutely free.
I don’t know about the investors but for Malik Riaz and Bahria Town entity, this is pretty good investment. Against an advertisement campaign of Rs. 75M (ok lets make it Rs.100M by including future expenses), he will be getting Rs.600M. That is a 600% return in 6 months.
Only illegal Ponzi or gambling schemes guarantee such returns. And yet Malik Riaz gets it all legally.