Interview with Aftab Ahmad Chaudhry ‘Regulatory authorities foremost to reform real estate’

*Mr. Aftab Ahmad Chaudhry is best known for continuous 5 terms amounting cumulatively to 15 years as the MD of Lahore and Islamabad Stock Exchanges. However, his most noteworthy contribution is the single-handed completion of ISE Towers and LSE Plazas-the two distinctly noticeable marketplaces which were successfully constructed after retrieval of the properties from complicated litigations. Today, these two projects form part of his construction management portfolio of more than one million square feet, having a commercial value of more than $100 million.

He is the only capital market professional having extensively worked on drafting the real estate oversight policy framework in South Asia, such as the draft proposals for the establishment of Real Estate Regulatory Authorities and REIT regulatory frameworks in the region. Presently, he is serving as an expert director on one of Pakistan’s largest REIT Management Companies- ISE RMC, besides being involved in digitisation of real estate eco-system.

Business Recorder caught up with him to discuss the potential of the infrastructure and construction industries in Pakistan. Following are the edited excerpts:*

BR Research: What ails the real estate sector in Pakistan?

Aftab Ahmad (AA): The problems are manifold. From bureaucratic and corrupt regulating agencies, poor record keeping, absence of digital title registry and cadastral arrangements, slow judicial system, zero consumer protection to limited availability of housing finance opportunities-all of these problems lead to an under-developed real estate sector in the country.

As of now, there are no federal or even provincial level regulating agencies. The sector is governed under the bye-laws of DHAs, the city development authorities, private sector builders, town and rural governments and cantonment boards. In this chaotic and archaic arrangement, neither the consumers are adequately protected, nor is the needed investment taking place in the country. It is quite unfortunate that despite being one of the largest asset classes, the sector has not grown to its true potential.

BRR: You have missed out the litigation part of the real estate sector in Pakistan. How big is this problem?

AA: Litigation is a huge problem, and it’s a legacy problem. Poor land records, antiquated justice system, and corrupt oversight and enforcement mechanism all play their part. Also, the non-commercial conduct of our public shares the blame. It’s an age-old system, which needs massive modernistic reforms to unlock value for the development of Pakistan.

BRR: We heard that two of your flagship portfolio projects-ISE Towers and LSE Plaza, also faced enormous litigations, but you somehow managed a win-win deal for all, and successfully completed these projects. Tell us a bit about them?

AA: Both projects had serious legacy problems. In case of ISE Towers, it took couple of years and a payment of Rs230 million to take repossession of the property. The party with which the litigation had been ongoing was somewhat of national enigmatic status. ISE had no money, whatsoever, so the negotiations never reached a level of seriousness.

When I stepped in, my belief was that everything can be managed. The times were good. I ended up raising money not only for the settlement but also for the construction of the Towers. We involved the chamber of Dr. Pervez Hassan, and an escrow arrangement headed by Mr. Bilal Shaikh, the then President of PICIC Bank, and later President Sindh Bank.

If this was any less challenging, the situation at LSE was more complicated. We had litigations/problems with adjoining properties, such as Imam Bargah and the family of CM Latif, the PECO founders. On top of this, we had many problems with the past contractors and consultants. However, everything fell in place. I also managed another settlement having a potential liability magnitude of Rs1.5 billion for LSE. This was with the family of Mr. Anjum Nisar, the current FPCCI President. I estimate that they would have also been benefitted by a sum of about one billion rupees, as shares of about this much value of Mr. Nisar Danka, were lying frozen at CDC, which I convinced the SECP to unfreeze at the end.

BRR: What kind of reforms can take place in Pakistan’s real estate sector?

AA: First and foremost is to have an arrangement of adequate oversight for this sector in the country. There should be a federal level Real Estate Regulatory Authority (RERA), which should function in tandem with the provincial level Real Estate Regulatory Agencies, just like the provincial food authorities. All of these authorities must develop uniform building and construction codes and procedures for design approvals and consumer protection.

A good model is the RERA Act of India passed in 2016. This Act mandated the establishment of a Union and all State level RERAs in the country. All projects were required to be registered by the developers and all real estate agents were also required to obtain unique IDs after registration with respective RERAs. The Act also provided for greater consumer protection besides blocking the flow of unaccounted money into the sector.

It is only with the above kind of arrangement that the sector can witness a greater transparency, attract more investment and accelerate the economic development of the country.

BRR: Recently, there has also been some news about the federal cabinet approving the establishment of RERA in Pakistan. What is the structure of this law?

AA: I have also read about this but have not had a look at the draft. We heard that Pakistan would also have a RERA Act, but then we also heard that Naya Pakistan Housing Development Authority (NPHDA) would be overseeing this. This is going to be problematic. NPHDA would just be one of the many autonomous development authorities in Pakistan. It cannot assume the oversight and regulation of all other agencies in the country. Without the adoption of a structure for a federal level RERA and the establishment of provincial level RERAs, we will not be able to bring the desired efficiencies and improvements in the way the real estate eco-system needs to evolve in Pakistan.

BRR: What do you think of the recently announced construction sector package by the government?

AA: For the most part, the package aims to address the source of money in the construction sector. It will be somewhat useful, but as of now there appears no demand on the horizon, be it the low-cost housing, new development schemes, office or residential plazas. Therefore, the package needs to be re-orientated to enable the flow the money to all kind of infrastructure development projects, where the federal and provincial governments would be the major buyers/users. The package must be workable for investment into ports, shipping, public and private health facilities, educational institutions, industrial estates, labor colonies, new cities, road networks and even prisons.