CPEC

Investment security figures as a major concern for foreign investors who contemplate benefiting from Pakistan’s emerging role in the global economic and trade designs of its domineering Chinese neighbour up north. The two countries signed a USD 46 billion China-Pakistan Economic Corridor (CPEC) agreement back in 2015. And since then, the Pakistani state and its administered peoples have considered CPEC to be the long-awaited saviour for their nation’s seemingly never-ending economic crises.

In the absence of an apparent and business-conducive regional environment, a number of investors have recently been left wondering whether the current CPEC-related property hikes in Pakistan are – indeed – short-lived. And according to most economic experts who are familiar with the turbulent financial history of the country, their reservations regarding the sustainability of the said price increments are warranted. Especially when the developments planned under the CPEC initiative are looked into individually – and not in their political and media-aggrandized totality.

Here is a quick overview of what CPEC holds for Pakistan in terms of property (and other infrastructural) developments.

CPEC-related infrastructural developments planned in Pakistan

According to a 2017 report featured on CNN International, CPEC – being an integral part of China’s One Belt, One Road initiative – has come with a ‘mega opportunity’ for Pakistan to develop its economy. The said article briefly makes mention of the projects planned under this corridor; which include, broadly, the development of road networks, railway lines, fibre-optic cable connections, a deep-sea port, solar farms, and coalmines.

As per the Pakistani government’s official CPEC website, the more prominent of these predominantly Chinese-sponsored concerns include:

1. The main CPEC route (a 3,000 kilometres-long road connecting Gwadar with the China’s Xinjiang province)
2. An upgrading of the existing Pakistan Railways Main Line (ML-1)
3. The New Gwadar International Airport
4. The development of Special Economic Zones (SEZs)
5. A Gwadar Eastbay Expressway
6. Water treatment plants, and facilities for water supply and distribution
7. A ‘Pak-China Friendship Hospital’ facility
8. A Gwadar ‘Livelihood Project’
9. The Bao Steel Park, and the establishment of stainless steel, petrochemical, and other local industries
10. The Gwadar University
11. A Gwadar ‘Smart Port City’ Master Plan
12. Matiari-to-Lahore & Matiari-to-Faisalabad transmission line projects
13. Power plants in Port Qasim
14. The Hydro China Dawood Wind Farm
15. The Suki Kinari Hydropower Station
16. Engro Thar Blocks I & II
17. Coal-based power projects in Gwadar
18. The Quaid-e-Azam Solar Park
19. The Jhimpir Wind Park
20. The Sachal Wind Farm
21. The Karot Hydropower Station
22. The Hub Coal-fired power plant
23. The Western Energy Wind Power Project
24. The Kohala Hydel Project

An ambitious construction gig!

Some of these projects have been already completed, while a majority are slated for construction & operation in the next couple of years. But knowing the unrelenting pace of Chinese industry, these other developments may come around into fruition perhaps sooner than is expected.

The impact of CPEC on Pakistan’s property market (as a whole)

For any foreign analyst bent on critically examining this causality, undermining the positive impact of the above-mentioned development projects on Pakistan’s property market would be unfair.

If we consider the case of the 3,000 kilometres-long CPEC Route alone, as soon as its section near Karachi (the country’s traditional port city) was finalised, the real estate situated in the adjoining areas experienced major price hikes due to a sudden outpouring of demand among property investors and developers. The same trends were further reported from all the major towns located along the said route.

While the CPEC Route is further divided into its Central, Eastern and Western sections (and will be developed as such), many other highways and road networks will be constructed in Pakistan in conjunction.

As a general property price appreciation principle, the development of road infrastructure is one of the major factors that trigger price hikes in any area; no matter how remote it is. So these consistent real estate investment breakthroughs, spurned by this created proximity, are not surprising. And this rule applies to all kinds of property, be it barren land incapable of much crops cultivation, agricultural land, or land that may be reserved for special purposes.

Landowners who are lucky to have the main CPEC Route, or its connecting road networks, pass through their land are now looking at guaranteed long-term investment returns.

On an interesting side note, the heightened current and expected demand of property in Pakistan has given birth to many new online real estate portals, including the recently launched Prop.pk. At the same time, the existing market contenders are keenly preparing to attend to the people seeking quick information on picking the right property investment options in the country (in the backdrop of CPEC).

How did Gwadar’s property market – specifically – respond to these developments?

Despite how vigorously the government’s infrastructure projects in Gwadar are being carried out at the moment, the real estate market in this port city remains active only a couple of times a year. Its performance flares up mostly when overseas Pakistanis return home for their annual holidays, or during the start and end of a given year. In other words, property demand here attains a noticeable boost when the city receives visitors.

Observing this trend, many hasty analysts tend to assume that the prices deflate during the remaining parts of the year. This conclusion, however, is not borne out by the ground reality.

A property investment gig in Gwadar is not a short-term affair, and most experienced investors are aware of this fact. For each property purchased for investment (non-residential) purposes here, the usual intention behind the decision to is to hold it for a medium to long-term duration – roughly spanning 3 to 5+ years. And since most of these investors normally come with good holding power, prices here don’t experience major drops in the absence of new stakeholders.

According to the stats maintained by Zameen.com, Pakistan’s leading real estate portal, property rates in Gwadar have gone up by 67.65% since July 2016. And if you’ve been following the country’s real estate market closely, you may recall that this was the same time when the former government introduced a new property tax collection regime that brought a considerable drop in aggregate real estate investment volume.

But even in these harsh investment conditions, Gwadar’s property market continued to battle on and retain much of its real estate value; a testament against the notion that the CPEC-related rates hike in Pakistan is short-lived.

How does the property market in Pakistan currently fare?

Due to the introduction of the new property tax collection mechanism introduced in 2016, real estate investments in the country (as referenced) have taken a major hit. Major price drops have been recorded in projects and locations that were previously considered to be ‘investor favourites’. And this development has nothing to do with CPEC, since the projects in question hold no direct association with the economic corridor.

As some token of providence, this situation conversely spurned genuine buyers to take the lead in buying property for their genuine residential (and not sales-oriented) needs. The high real estate demand among these end-users, in fact, has kept the market from experiencing a complete crash-like situation. And nowadays, instead of experiencing sharp price hikes based on speculative investment trends (as was previously the case), the market tends to record a gradual yet consistent rise in property rates across the country.

This trend has also been reported by non-Pakistani sources. A 2018 article published by Khaleej Times further goes on to detail how property buying stats shifted when the current government imposed certain sanctions on non-filers looking to buy some local real estate.

Cautious, yet zealous, expectations…

The current pace of market activity indicates that Pakistanis, for the most part, are aware of the rising worth of real estate in their country.

Their optimism, if you ask any typical middle class worker going about his (or her) daily routine, largely rests on the country’s economic transformation which CPEC promises to catalyse and usher in. And while these feverishly anticipated developments may not offer them many desirable gains in the short-term, the returns on investments in the long-term, they reckon, will be totally worth the wait.

It is clear that they have affixed their future with weighty expectations.

Only time will tell what will become of them.