So the premium on Bahria Town registration slip of Rs.15,000 has reached Rs.195,000 in less than two months if all the SMSs and emails are to be believed. That is a 1,300% return in less than two months. For a “piece of slip” which has nothing behind it (the slip entitles you to nothing) yet people are falling over one another to buy it, it boggles the mind.
Yes Yes I know it is Bahria Town and Malik Riaz has developed good projects in Lahore and Islamabad but still it does not make sense. Let me give you an example. Lets say your
closest friend your brother who you trust asks you to buy a piece of slip for Rs.100,000. Discussion will move like this:
You: “what does the piece of slip entitles me to?”
You brother: “Nothing. It is just an invitation to apply for booking.”
You: “Ok. Is the booking guaranteed?”.
Your brother “No.”
You: “Rs.100,000 for a piece of paper? Isn’t that exhorbitant. Acha chalo..where is the land that I will book if I am lucky? Is it inside Karachi like Naya Nazimabad, is it in suburbs somewhere near Gulshan-e-Maymar or is it mid-way to Hyderabad near DHA City”.
Your brother: “I have no idea”.
You: “What is the size of the plot or its final price?”
Your brother: “I have no clue”
You: “When do you expect the booking to happen?”
Your brother: “I am not sure”
You: “So you are asking me to pay Rs.100,000 for a piece of paper which does not guarantee me a plot which you have no idea where it is located or what size it is or what is its price?”
Your brother: “Yes”
Your brother: “Because it is Bahria Town”
You know how stupid the brother sounds. It is exactly what is happening. Reminds me of Tulip Mania as recounted by Charles Mackay
According to Mackay, the growing popularity of tulips in the early 17th century caught the attention of the entire nation; “the population, even to its lowest dregs, embarked in the tulip trade”. By 1635, a sale of 40 bulbs for 100,000 florins (also known as Dutch guilders) was recorded. By way of comparison, a ton of butter cost around 100 florins, a skilled laborer might earn 150 florins a year, and “eight fat swine” cost 240 florins. (According to the International Institute of Social History, one florin had the purchasing power of €10.28 in 2002.)
By 1636 tulips were traded on the exchanges of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society; Mackay recounted people selling or trading their other possessions in order to speculate in the tulip market, such as an offer of 12 acres (49,000 m2) of land for one of two existing Semper Augustus bulbs, or a single bulb of the Viceroy that was purchased for a basket of goods (shown at right) worth 2,500 florins.
You might come back with the argument that there is really something behind it. People are willing to pay Rs.195,000 for the “piece of slip.” And this brings us to Greater fool theory:
The greater fool theory describes a situation where the price of an object is not being driven by intrinsic values, but by expectations that irrational bidders for limited assets or commodities, will set the price. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. Or one may rationally have the expectation that the item can be resold to a “greater fool” later.
In real estate the greater fool theory can drive investment under the expectation that prices will rise, or force need-based-buyers to out bid irrational or ill-informed buyers. A need-basis can be for basic housing or for organizations fulfilling exigent commercial interests.
The question that it raises is that Malik Riaz is no philanthropist. If there is so much demand for real estate in Karachi, why not increase the price of the plot and pocket the profit. But he is smart. He is allowing ordinary people to become stake holders in his mischievous schemes so that when he does something illegal or wrong, ordinary people who have made profit this “piece of slip” business will defend him in court of public opinion “uss nay aam aadmi ko munafa kamanay ka moqa dia” not realizing that this profit is a fluke, a gamble in its truest form. It is not even halal (because in Islam when you trade, the item being traded needs to be clearly identified) but lets not bring religion here.
I just got an email from a friend explaining Bahria Town tactics. So I will copy and paste it below:
It is very difficult to say anything about Bahria Town Karachi upcoming projects
1. Bahria Town Icon – Pakistan’s Tallest Building Plan (62 Storey Building)
2. Bahria Town Tower – 24 Storey Building at final stage of completion
3. Bahria Town Karachi – Master Planned Community (Villas and Plots)
We do not have any information regarding rate, payment plan and possession date. For Bahria Town Karachi, (as per Bahria Town track record) there is no idea of location of this project. It is obvious that it would be planned out of city area. As Karachi is a very big city and commuting to city area is not safe so it may not attract the investors in the start.
I understand Bahria Town itself is not clear so it is asking for registration first. It is kind of feeler to understand the demand as well as to collect huge funds.
About 8 years ago Bahria Town Pvt. Ltd. started same strategy when it sold 85,000 HOME PLUS cards and charged Rs.6,000/= or US$100 with a commitment that the card holders will be receiving the application forms of upcoming projects at their door steps. It was January 2005 when Home Plus cards project was launched. Do you have any idea when was upcoming project launched? After 16 months, on March 22, 2006, Bahria Town started sending application forms of its Awami Villas Project to Home Plus Card Holders.
If we consider the track record and strategy of Bahria Town, the actual launch of Karachi projects would be after a year or so. This registration scheme will also help BT to understand the trend of investors in Karachi and the demand for these projects. This demand would be the main factor in deciding the pricing of project and payment plan.
Karachi is a business hub of Pakistan. Bahria Town can not afford to ignore its market and investors. Contrary to that, Karachi also needs these kinds of safe, secure living and business atmosphere which Bahria has planned to provide. As mentioned above, Bahria Town would take around a year or so to present some actual project plan. It will, in the meantime, play with the funds received from registration. I hope that Bahria Town will flourish in Karachi but it should be considered a long term investment.
Earlier I had calculated that Malik Riaz will be making around Rs. 600 Million from the interest on the cash he has received. But if he takes two years to announce the actual project, the actual income would be in the range of Rs.1.5 Billion. I know it is not a big amount for Malik Riaz but it is free income.
So all those waiting for some clarity on the project. Sit tight and wait. They are saying that premium on the “piece of slip” will increase to Rs.2.5Million.
- If you are looking for some quick high risk-high return money making opportunity, I suggest you buy a slip and flip it quickly to the next sucker. Don’t hold on to it for ever.
- If you have multiple slips, sell one and get your principal and profit out. Then you can continue to hold on to other slips for any further gain or the property
- If you are looking to buy some real estate, my suggestion is to wait till the project is announced and people get allotment letters. A lot of people will want to sell the property and exit when the project is announced. You might have to pay a premium for a file but at least you will know what are you buying
- Is Dubai back? Do I have anything against Bahria Town? (2paisa.wordpress.com)
- Is Bahria Town a good investment (2paisa.wordpress.com)
- Where is Bahria Town Karachi? (2paisa.wordpress.com)