Bahria Town : Sucker born every minute

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”

You:”Why?”

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”.[6] 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.[6] (According to the International Institute of Social History, one florin had the purchasing power of €10.28 in 2002.[33])

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.

My recommendation:

  • 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
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Is Dubai back? Do I have anything against Bahria Town?

Dubai is heating up again if hundreds of billions of dollars of new projects announced in last two weeks to coincide with Cityscape Dubai. Both Dubai and Abu Dhabi are in this game.

Property, transport and power: Mega projects that will shape future of the Emirates

Beyond the halls of Cityscape, where the towers of tomorrow will jostle for position with other real estate developments, a handful of mega projects are rapidly transforming the non-oil economy of the Emirates. They represent a key part of a blueprint aimed at diversifying the nation’s economy and using hydrocarbon wealth to build industries of the future. From the nuclear reactors taking shape in the west to the pipeline carrying crude to the east, massive infrastructure projects worth hundreds of billions of dollars are changing the industrial foundations of the country.

You can click on the link above to read about the details of these projects. I will not go into financial details as I have noticed that most of the time people are just looking for headline grabbing news items. So I will use news headlines. I am not telling you that it is a mirage nor I am telling you not to invest in Dubai. I just want to let you know that be careful of what you invest in. Do research and don’t rush. If it is too good to be true, then probably it is.

This is the picture of Damac’s Akoya project that they unveiled in the current Cityscape.

This is how they are marketing the project

Who in the world uses Mafia Don’s picture to market the project. Probably most of prospective investors will find this harmless or even say that I am building unnecessary links. May be I am. But then you have this at the same time Cityscape exhibition is going

Dubai real estate promotion
DAMAC promotion before 2008. Giving away a private jet with the property. We still have some way to go till that time returns

Dubai’s Damac accused of selling same project twice

Damac publicly claimed at one point that 75 percent of La Residence had been sold off-plan, despite never laying a single brick.

In March this year, the company announced a new project branded by Hollywood studio Paramount on the same site, before launching sales to a fresh batch of investors.

Email correspondence between the investor and an agent representing Damac seen by Arabian Business urged the former to accept the offer, warning that the developer has significant legal clout and the backing of Dubai’s royal family.

True unlike last time, there is little bank debt so this is not leveraged speculation. People are putting up their own money. The advantage of this will be when the market crashes, unlike last time, banks will remain standing but investors will be left without their shirts.

State-owned developer Nakheel even said it would restart work on one of its most ill-starred projects, a palm-shaped artificial island with an amphitheatre which helped to drive it deep into debt a few years ago. But people are still as blind:

“We are seeing the same hype again as in 2008,” Jammal Hammoud, head of investment firm Milestones Capital, told a meeting at Cityscape.

Hours later, a scuffle broke out in the building as hundreds of would-be buyers lined up to take advantage of special offers from state-controlled developer Emaar Properties. Security had to be called to control the crowd.

One investor, who did not wish to be named, said he had just reserved a yet-to-be-built, four-bedroom apartment at Fountain Views, an Emaar project, for 4 million dirhams ($1.1 million).

“I had just a few minutes to decide because there were so many behind me who wanted the unit. I just took it on the hope that Dubai will be booming soon,” said the Indian national.

You are investing millions of your own money and you are deciding it in a few minutes. If the same guy was working for a bank or an investor he would take days if not weeks to decide whether to invest his employer’s money. But since it is his own money, he doesn’t care.

Dubai’s Deyaar JV says new project sold out

Deyaar

A joint venture between Dubai real estate firms Deyaar Development and Dubai Properties Group said that phase one of its new project had sold out following a two-day sales event.

Arady Developments said that units at its Central Park Residences went on sale over September 14-15, with investors snapping up all of the released studio, one-, two- and penthouse apartments. The company did not specify how many units had been put up for sale.

These companies had been in Dubai for last many years. The expats who are buying these properties would have been there would a few years. What has changed in last couple of months that suddenly all projects and properties that nobody considered was worth investing in are selling like hot cakes. Or is it a race to get your hands on anything that is available. (FYI Deyaar is owned by Dubai Islamic Bank which is in turn owned by ruling family)

Meydan Business Park sold out

All 120 plots in the Meydan Business Park have been sold out with the prices in the sought-after location fetching as much as AED30m ($8.17m), the developer revealed.

“We had approximately 120 (lots) and we’ve sold it out just before Cityscape,” he said, added that about 80 to 90 lots sold within two months of hitting the market.

US$8 million property is not cheap. Are these people buying these properties to live for capital gain. If its to live in them, may it be a comfortable and dream home for them. If they are buying to put on rent or sell at a capital gain, we are in property bubble and last one holding the title deed will not be wearing shorts when the tide goes out.

Meydan, Meraas launch Dubai Canal homes project

Mohammad Al Khayat, Meydan’s head of commercial and free zone, told reporters at Cityscape Global on Tuesday that the joint venture, which was valued at about AED30-35bn ($8.62bn-$9.53bn) in sales, would be for residential development on both sides of the canal.

A project of the size of $9 billion in sales. That is just one project. There will be another projects as well. Does Dubai government have the cash to carry out all the infrastructure work probably in tens of billions of dollars that is a prerequisite for these projects to take off. But position of Dubai is not so strong.

IMF warns Dubai on debt risks
But Dubai’s debt remained “substantial” at $142bn, about 102 per cent of GDP, the IMF said. Around $60bn of that amount fell due between this year and 2017, it said.

Forthcoming maturing debt next year included $20bn in Dubai government debt lent by Abu Dhabi and the Central Bank in 2009 as part of the Dubai Financial Support Fund. The cash was used to help companies struggling in the aftermath of the financial crisis.

Restructured debt related to Dubai World and Nakheel, the property company, will begin to mature in 2015 and 2016, the IMF said.

And probably to cover his ass, or may be he is jealous of Dubai’s growth or may be he wants to have “I told you so” moment when the time comes, Head of Abu Dhabi government development agency says that there is a bubble in Dubai real estate


Dubai headed for another slump within 18mths says Abu Dhabi chief

The head of an Abu Dhabi real estate firm backed by the Mubadala Group has predicted Dubai’s property sector will hit another slump in 18 to 24 months, saying the change was inevitable in an emerging market.

 

I have nothing against Dubai. Rather I think its a role model of how a country which could have easily been suffering from Dutch Disease controlled it (though didn’t eliminate it) significantly just by virtue of its visionary leadership. However, having seen friends and family burnt last time and jumping in again this time saying that “this time its different”, my only suggestion is its your money, just be careful what you invest in.

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Now coming to Bahria Town. Friends and family have called me to let me know that they have been receiving calls from real estate agents who are willing to buy registration forms from them at a premium of Rs.20,000 to Rs.30,000. At an investment of Rs.15,000, that is almost an 150% to 200% return.

So I asked them did any one sell their registration. No one has. So it is a paper return. Some one left a comment on my earlier blog post that he is ready to buy the forms. The question one needs to ask is that if there were unlimited forms this time and anyone could print the forms or get the forms from any of the bank branches and submit it over a number of days then why didn’t these buyers submit a form on the requisite day? Assuming something stopped them, I am still waiting for a single anecdote where someone has actually realized that profit. Till someone sells his form to one of these buyers, it is just a con game. If some common man makes some money, I am happy for him and may he do well. But when you don’t know what is the underlying property, its a gamble over a piece of paper.

I just leave you with story which made the internet back in 2006-2008 crisis

Once upon a time in a village a man appeared who announced to the villagers that he would buy monkeys for $10. The villagers knew that the jungle held countless monkeys, easily caught. The man bought 2 thousand.

As the supply diminished, they become difficult to catch, and villagers returned to their farms.  The man announced that he would pay $20. The villagers renewed their efforts and caught 1,000 more monkeys.

The supply quickly diminished, but before they returned to their farms the man increased his offer to $40 each.  Monkeys became so rare that it was difficult to even see a monkey let alone catch it. But they caught 500.

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business his assistant would now buy for the man.   The man departed.

Then the assistant told the villagers, “Look at all these monkeys the man has in that big cage.  I will sell them to you at $50 each. When the man comes back you can sell the monkey’s back to him for $100.” The villagers queued up with all their saving to buy the monkeys.  The assistant took their money. They never saw either the man or his assistant again.

They now owned 3,500 monkeys. They were paid $60,000 to catch them, and bought them back for $175,000.

Again I wish Malik Riaz and all the investors good fortune.

Is Bahria Town Karachi a good investment?

Bahria Town

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.

  1. At 15,000 per application, that is Rs.1.5 Billion for 100,000 applications.
  2. 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
  3. Assuming he has negotiated a rate of 8% interest, Rs. 1.5 Billion in the bank will earn him Rs.30M in 3 months
  4. Add to it, Rs.5000 per application that he will not be returning and that is another Rs.500M
  5. So that makes a total of Rs.530M
  6. Deducting around 50-75M that he spent on advertisement, and that leaves him with Rs.455M
  7. Not a lot of money for him but still a handsome amount as it comes with no strings attached.
  8. 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.

Malik Riaz, Aslam Beg and Ajwa Dates

Many a times I have come across Pakistani blogs which berate columnists of Urdu newspapers for being fundamentalists or right wing or plain stupid. It is uncalled for as the columnists are  reflecting the tendencies of their readers. The bloggers belong to the English speaking elite and tend to have left-of-center leanings and because they do not agree with the viewpoint of the columnists or the masses it does not give them the right to castigate them.

However, once in a while one does come across a stupid Urdu column. (This does not mean that there are no stupid English columns). One of them I reproduce below which is by notable Urdu columnist and TV anchor Javed Chaudry. This was shared on Facebook by Mohammad Hanif of “Case of Exploding Mangoes” fame. I wish I could translate the article for English reader but that seems like too much work.

The real gem in the article loosely translated says

Malik Riaz, with a slaughtered chicken in his hand, is lying in the pond full of alligators; and for past 30 years has been saving his own life and protecting the chicken as well

The three most important take aways from this article are

1. Malik Riaz is Pakistan’s Bill Gates
2. Aslam Beg wants to drop an atom bomb at least on India
3. Pakistani soldiers can get away with anything e.g., Aslam Beg hid his medical condition while in service which is against the rules and lives to tell about it without fear of any consequences.

Finally, as one of the commentator said, there is nothing surprising about Malik Riaz’s methodology_ as a civilian, he did what the uniform-wearers in this country have been doing for decades i.e., encroach upon land belonging to poor and building on it city for the rich.