Where can Karachi make more money

Published: May 8, 2016
Bahria Icon Tower in Karachi's Clifton. PHOTO: AFP

Bahria Icon Tower in Karachi's Clifton. PHOTO: AFP


Land is the largest source of income generation in Karachi’s shadow economy, which can foster more informal and illicit activity, according to a study by the United States Institute of Peace (USIP), released on May 3.

Written by economist Asad Sayeed, journalist Khurram Husain and former central banker Syed Salim Raza, the study examines the evolution of informality in Karachi’s land, manufacturing and transport sectors while drawing on field research conducted by the USIP between December 2014 and April 2015.

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The study notes that high-income residents of Karachi, while constituting a smaller percentage of the population, occupy a greater portion of land. As much as 27% of land in Karachi is used for formal residential areas. In contrast, only 8.1% of the land is used for informal residential areas catering to more than 50% of the population. An estimated 55% of Karachi’s population lived in unplanned or partially planned areas in 2012. As a result, there are now 2,800 people per hectare in Karachi’s informal residential areas versus 200 people per hectare in elite residential areas, it says.

Calling for the formal recognition of Karachi’s low-income katchi abadis (KAs), the writers say it will release “locked” equity value for house owners by allowing them to borrow against proper title deeds. As a result, they will be able to build additional floors and further expand their businesses, potentially leading to increased income and employment at the grassroots level.

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While KAs’ property values have been rising steadily, owners cannot unlock any monetary value from the capital accrued in their homes, the study notes. “Borrowing against home mortgages would enable them to upgrade and expand their properties or leverage their businesses. Such financing could thus play a strong role in raising incomes and wealth at the grassroots level and contribute to overall stabilisation of the city,” it said.

Currently, banks do not finance KA properties because of a lack of title deeds and planning permission. An entire settlement must gain official sanction i.e. regularisation from the land-owning authority concerned – before title deeds can be issued for a KA property.

The study says the price of a standard 80-100 square-meter KA property has been increasing along with demand and currently equates to seven years of income for the average low-income wage earner. The accepted industry ratio for affordability is considered to be four years of income, which was the case in Karachi a decade ago. Consequently, more people are now renting and, depending on the area, 33%-50% of the housing units may be rented in KAs, it says.

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The writers conclude that total KA properties are worth around Rs500 billion, assuming an average (conservative) price of Rs600,000. “Even if half of this property were to be used as collateral for debt (at a 50% loan-to-value), Rs125 billion could be unlocked for home or business expansion,” they note.

Noting that individual KA units will need title deeds for bank lending to commence, the writers say a pooling of borrowers will expand coverage in the case where individual loans are small and do not meet the banks’ income criteria. Highlighting the fragmentation of landholdings across seventeen land-owning agencies and the provincial government’s overriding discretionary power as key impediments, the study notes that an empowered local government is indispensable to sustainable urban development.

“Karachi needs to have strong local representation and accountability and its own ‘funds, functions, and functionaries’ to build the accessible system of governance the city requires for its stability and prosperity,” it said.

Published in The Express Tribune, May 8th, 2016.

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Reader Comments (14)

  • Kodi Al Fayed
    May 8, 2016 - 11:38AM

    Monetizing poor people’s land for bank profits and government revenue generation is wrong on so many levels.Recommend

  • Wajahat shamsi
    May 8, 2016 - 12:27PM

    According to the author if the majority starts comitting crime it should be made legal after a few decades. Majority of peopme are also involved in tax evasion and billions are stashed in black money. They should also make it legal too if we go down this path.
    KA should be discouraged and raised to the ground. While the govt should construct low cost housing and move it residence into those areas. Like done in Mumbai.
    KA are a source if crime and are a symbol of definace and neglence to the law.Recommend

  • touseef ahmed
    May 8, 2016 - 2:11PM

    Caase study by USIP… Our own institutes are sleepingRecommend

  • Jamal
    May 8, 2016 - 2:23PM

    The future of Karachi I see is this: by next decade Karachi will have two bright sides (the DHA by the sea and Bahraia / DHA near Sindh) and rest of the city will turn into a big slum. Recommend

  • azhar raza
    May 8, 2016 - 2:36PM

    The City of lights my City where i was born and when ever i go back it breaks my heart to see the division’s the hate the lawlessness the carelessness the massacre of innocent life every day, the same city which protected every one’s life and property, it is so sad to see all this..there are several reason’s for all this.. Local,National and International but before we blame any one else we need to look at ourselves first.Recommend

  • Ali S
    May 8, 2016 - 3:35PM

    The rampant real estate mafia – especially establishment-backed ones like DHA City and Bahria – need to be stopped as soon as possible otherwise poor Karachiites will be paying to sleep on the footpath. We need an empowered local body govt that serves the interests of common Karachiites, not rich developers and their upper middle-class clients.

    Just look at that picture above, it’s all grey concrete, no greenery – does it look like a place to live?Recommend

  • Ch. KA Nye
    May 8, 2016 - 4:41PM

    It’s all very well concluding that the KAs should be legalized and thus allow the posessors to mortgage ‘their’ property… However, have the writers experienced just how tightly knit the current posessors are? If loans are given and subsequently defaulted upon, is there any possibility of reposessing the property? I think not! It is practically impossible to physically enter the labyrinths that are KAs just to get rid of kundas let alone entering to reposess a property. Ground realities are such… Recommend

  • Hasan ali
    May 8, 2016 - 8:21PM

    PPP wants to convert Karachi into another Larkana.Recommend

  • May 8, 2016 - 9:11PM

    The provincial government should invest in the infrastructure projects and security of the city.Recommend

  • ibs
    May 8, 2016 - 10:18PM

    @azhar raza:

    It has improved ALOT. Go visit again and mend your “broken heart”.Recommend

  • May 9, 2016 - 12:30AM

    Karachi needs peace. Nothing elseRecommend

  • The Saint
    May 9, 2016 - 9:01AM

    Nothing new, this sounds like de Soto speaking!
    Well, the strategy has already been rejected across the world; the banking sector is different from that of global North, gentrification remains the biggest issue, sprawl and new informal settlements are encouraged.Recommend

  • Blue Eyed
    May 9, 2016 - 8:27PM

    Lahore is replacing Karachi.With Chinese and Turkish investments of Shahbaz Shareef Lahore is becoming the richest city in South Asia.But we should feel proud since both Lahore and Karachi are part of Pakistan.Recommend

  • ali
    May 9, 2016 - 9:36PM

    @Blue Eyed:
    oh plz lahore dont compete with likes of karachi,it competes with big cities of world not with some slum called karachi.Recommend

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