Bubble bursts: Farmhouse development sector takes a nosedive

With legal, security and economic issues ballooning, the industry has stagnated.

KARACHI:

The farmhouse development sector in Karachi has taken a nosedive with business activity dropping by as much as 75%, farmhouse developers told The Express Tribune.

According to Saleem Ahmed Chandna, who heads the All Karachi Farmhouses Welfare Association, the trend of owning and renting farmhouses on the outskirts of Karachi gathered pace with the boom in the national economy during the first seven years of the last decade.

“Against all bureaucratic hurdles, the farmhouse business thrived incredibly until 2007. There wasn’t a single weekend that didn’t see thriving business. Afterwards, it’s been on a downward path,” Chandna said.

With a minimum area of one acre, a typical farmhouse with adequate facilities costs roughly Rs2.5 million. The cost may go up to Rs7.5 million based on added luxuries.

Chandna, who owns Al-Jannat Village and Farmhouses, said his primary customers were businessmen, as they were the only people who could afford to buy land for recreational use.

“Once they buy a farmhouse, they not only use it for personal recreation, but also rent it out off and on. That covers basic expenses and makes it self-sustaining,” Chandna said.

Legal status

The legal status of farmhouses is ambiguous. In government records, they still exist as agricultural property. While farmhouse developers insist that they should be charged residential, as opposed to commercial, rates for electricity, they continue to pay 25% entertainment duty on the land that is technically reserved for agricultural uses.

The last provincial government declared farmhouses illegal on the pretext that the recreational use of agricultural land was against the law. Later, a compromise was reached following a number of meetings between farmhouse developers and senior government officials.

“I asked them a simple question: Will you allow me to build farmhouses in the middle of the city? Should they be built in Saddar town or Gadap town? Thankfully, the government accepted our point of view in the end,” Chandna said.

The resolution of the conflict is in the final stages now. Farmhouse developers are expected to get the 99-year lease on their property soon, which will make its status residential.

He said farmhouse owners paid income tax, entertainment tax, property tax and city government tax. “Yet, I had to get three pole-mounted transformers (PMTs) installed for my property on a self-finance basis.”

Land mafia

While talking to The Express Tribune on condition of anonymity, a farmhouse developer said the downside of dealing in real estate on the outer edge of a city like Karachi is the constant threat from the land mafia.

“One morning you receive a phone call from your chowkidar that your two-acre farmhouse has been taken over by some armed men. Although you know you’ll get it back eventually, just the thought of dealing with the land department, police and courts makes you nervous,” he said.

However, he added sometimes the objective of land grabbers is not to sit on the land permanently. “You know when they’re there to make a quick buck only. In such cases, some people simply pay them. They don’t want a fuss or long-standing dispute with gangsters.”

Rising costs

The lifestyle real estate business is directly proportional to the state of the economy, said Mehtab Khan, a Karachi-based real estate agent. “No businessman, however rich, will ever buy lifestyle property when his business is not doing well.”

He said the cost of materials used in the construction of farmhouses has gone up by 25-35% over the past two years. “What we have right now is higher prices and fewer buyers. Three years after 2008, when the GDP growth rate was merely 1.6%, the slump in the lifestyle real estate sector hasn’t dissipated.

“For us, it’s still 2008.”

Published in The Express Tribune, December 12^th, 2011.