Multan Madness: Is DHA Multan the perfect portrait of all the peculiarities of Pakistan’s real estate market?

Trouble is brewing in Multan. Over the past six years over 9000 acres of the historic city situated between its two largest roads, Bosan and Mattital, have seen the rapid development and progression of the Defence Housing Authority. Yet the DHA Multan project is proving to be less of a dream and more of a nightmare for a number of investors that have bought plots in the housing society. 

In the past year, prices of plots have fallen by as much as 50% in some areas. So how did a flagship project by DHA in a large city like Multan end up seeing such dramatic price fluctuations? The prices are less a reflection on DHA Multan and more of an issue that can be explained by the peculiarities of the real estate market in Pakistan. 

Very briefly put, when DHA Multan was initially launched in 2017 it was heavily marketed in cities outside of Multan. That meant everyone ranging from overseas Pakistanis to people from Lahore, Karachi, and Islamabad looking for real estate investments wanted in on the project. Because of this initial hype the prices soared. But as people started wanting to get a return on this “investment” they realised something drastic: nobody that actually wanted to live in DHA Multan was willing to pay such high prices for plots. Suddenly the bubble burst and the prices have just been declining and have finally now reached a stage of stability. 

How did this come to be? To understand the story of Multan we must first understand the story of the Defence Housing Authority and how it operates all over the country. 

A brief history of reliability 

There is an air that surrounds the Defence Housing Authority. Real estate is a strange beast in Pakistan. It is by far a go to aspirational avenue for investment for much of the country’s rising middle class. And it isn’t housing or commercial projects that are so much the main focus of peoples’ investments as residential real estate. Owning a “plot” is considered a safe place to park your money. 

And there is no safer plot than one in DHA. Without getting into the intricacies of why Pakistanis invest so heavily in real estate and whether or not that is a good idea, we can safely say that real estate investments have worked out for money. We compiled an index to show average returns across these asset classes in Pakistan since January 1, 1999 through the end of June 2020. What we found was that real estate was the third-best performing asset class available to ordinary Pakistanis, behind the stock market and gold.

Read on: Why (and how much) Pakistanis overinvest in real estate

The problem has been that as a result far too many have tried to become real estate developers in the hopes of becoming rich. This has led to a number of very typical scams within the real estate market in Pakistan. You see, starting a real estate project is not cheap. What many “developers” do is that they begin marketing a project when at times they have not even acquired the land for the project let alone start any development. They sell people files, certificates, and all manner of marketing gimmicks that make them think they are buying a plot in the future when in fact they are at best placing a bet on the success of said project. 

Once they’ve collected this money they start the actual land acquisition and development process, but since this starts late many of these projects request NOCs and other approvals after they have already taken money from people. If a project gets stuck in the approval stage all of that money they collected is then frozen indefinitely. And these are just the barebones of it. In many cases these developers tell blatant lies that are nothing short of entrapment. 

In this sense real estate is a dirty business particularly because many people often have their life savings tied up in such projects. And in this messy environment DHA is supposed to offer some relief. The authority has a reputation for being clean, organised, and (almost) fraud-free. It doesn’t hurt that they are also associated with the Pakistan Army and have many serving members of the army as part of their administration. 

The exact legal status of the Defence Housing Authority is an interesting question. The first and the oldest DHA in Karachi was initially a private housing society formed in the 1950s. It was abolished and replaced with the Pakistan Defence Officers Housing Authority during General Zia’s regime under a presidential order which also imposed a management structure on the body. Similarly in Lahore what is today DHA started off as Civil and Defence Housing Society in 1973 before it was renamed as Lahore Cantonment Co-Operative Housing Society (LCCHS) and was registered with Punjab Government in March 1975. The Lahore High Court later entrusted the powers of the LCCHS to Commander Lahore Corps In 1991. The society was subsequently converted to DHA Lahore in 1999 through a Provincial Ordinance. After these two DHAs were formed in Lahore and Karachi around the same time, DHA was federalised and formally created as an independent legal entity in 2004 by an act of parliament. 

The original idea for DHA was to provide a body that would create housing solutions for retired and serving army officers and the families of shuhada. The 2004 act of parliament made DHA a self-governing body but with some checks and balances. This means that DHA is an autonomous body and runs itself as a company. In turn, individual DHA projects in different cities are also not run from one central head office. However there is overarching control by the armed forces. According to the spokesperson for DHA Lahore, Major (Retired) Wahid Bukhari, DHA undergoes external audits. In fact, the audit responsibility for DHAs falls under the Welfare and Rehabilitation Wing (W&R) of the Army. During these audits, a wide range of questions is asked, and subsequently, the audit reports are submitted to the Ministry of Defence to account for the total expenditure, profits generated, and losses incurred. When asked about the allocation of profits earned from DHAs’ real estate businesses, Major Bukhari, while partially answering the question, explained that in 2003, when DHA was transformed into Self-Governing Authorities through a bill in the National Assembly, it was decided that a portion of the profits generated by DHA would be allocated for the welfare of the families of martyrs (shuhada), and Army employees would be provided with land. The families of martyrs receive land free of cost, while Army employees receive rebates. Additionally, various developments, including the construction of underpasses, roads, and infrastructure within DHAs, are funded by DHAs themselves from their own resources.

How your typical DHA project works (including Multan) 

Now here is the situation you have. Projects by DHA in Lahore, Karachi, and Islamabad have expanded quite a lot. Lahore, for example, is now on to its ninth phase of DHA where development has taken place and people are using it as a residential area. They have also done extended projects such as DHA Rahbar, which itself is on its fourth phase. In fact, DHA represents a whopping 25% of Lahore. What was initially 34000 kanals has now been stretched to cover a whopping 3 Lacs 12000 kanals.

And the way DHA goes about its business in these cities is exactly what it does in other regions too. The first thing they do is identify land on which a housing scheme can be built. Once this is done, the authority’s land acquisition department makes quick work of identifying the owners and trying to buy the land from them. In this case they offer owners either cash or the opportunity to own DHA plots once the land is finally developed. Once the land is acquired DHA starts a process known as balloting. 

In this they begin by listing what price they think a plot is going to be. For example, in the case of DHA Multan, the price of a plot for 1 Kanal was kept at around Rs 50 lakhs. Once this price is announced they then hold a sort of lucky draw whereby people that register for the balloting are allotted plot numbers. As soon as these are allotted DHA also gives the person that receives the ballot a schedule of development charges — these are to be paid over a few years. The idea is to carry out the development of infrastructure using this money. In the case of DHA Multan the charges for development were Rs 21 lakh for a one kanal plot. 

Now, when a project like this is ongoing there are a number of people that are part of the bidding process. There are those, of course, that hope to buy a plot early at cheap price so that by the time it is developed and ready they can hopefully build a house on it and live there. Then there are those that wish to invest in this DHA and simply buy the plot with the intention of flipping it to a buyer that wants it eventually. In most cases, the average plot goes through at least a few hands wanting to invest at different stages. 

But the eventual goal is for the price to settle at a range where potential homeowners will buy the plot and build there. This is where things get a little dicey. Because of the initial set of people buying plots in DHA Multan, there was very little representation from the people of Multan. 

For Multan but not of Multan or by Multan

DHA Multan is a particularly ambitious project. The project has wider avenues than any other DHA in the country and was heavily marketed not just in Multan but also in places like Lahore and Islamabad. In fact, DHA Multan, which is not the same as DHA Lahore but a separate project with a separate management, even opened up an office in Lahore. This was because it was presented by property dealers and the management alike as a great investment opportunity. 

The hype immediately helped the project take off and there was a lot of interest from outside Multan. According to Riaz Wattoo, one of the bigger real estate agents in the region, when DHA Multan was launched, over forty percent of the investors were overseas Pakistanis, around forty percent were from across the country, and only fifteen to twenty percent of the investors were from Multan itself.

“The crucial point was whether the priority of DHA Multan was local investors from Multan or overseas Pakistanis and other investors. I do not hesitate to say that DHA Multan prioritised local investors and focused on satisfying them. The market situation was such that DHA Multan was often referred to as a chapter of DHA Lahore. This was why, when the project started, many property dealers and agents operating with DHA Lahore encouraged their investors to invest in DHA Multan. It is noteworthy that the dealers from DHA Lahore and Islamabad have a large network of investors who trust them, partly because those who invested through these agents in DHA Lahore never faced a loss. With this confidence, investors started investing in DHA Multan,” he explains. 

But there were issues. Most of the investors were coming from outside Multan and rightfully expected that DHA Multan would operate similarly to how they had seen DHA operate in other large cities. The first problem, however, was that the hype possibly caused an artificial ballooning of the prices. In Multan, one of the more up-market housing areas is Gulgasht colony, which is fully developed. Over here a one kanal plot can cost around Rs 1 crore to Rs 1 crore and 20 lakhs. In DHA Multan, a one kanal plot was initially priced at Rs 60 to 70 lakhs with around Rs 20 lakhs on top of this as development charges. 

But the DHA management was quick with development and the place started taking shape. As time passed by and more investors from Lahore and other areas started coming in the prices kept increasing and one kanal plots were being traded as high as 1 crore and 60 lakhs in 2022. But this was around the time that the bubble was about to burst. At the five year mark, a number of the initial investors wanted to exit. The project had developed enough that people living in Multan and wanting to shift to DHA Multan would want to buy the plots. What they found at this point was that there were no buyers willing to engage them at these rates. Quickly the prices started falling. Anyone considering moving to DHA Multan was also thinking of skyrocketing construction costs. So the rates started falling. As of now, a one kanal plot in DHA Multan is priced at around Rs 75 lakhs — a fall of more than half the value it reached a year ago. 

And other things were going wrong too. As Wattoo explains, the entire project was plagued by problems and the investors wanted out. 

“A major issue arose when DHA Multan’s administration could not cater to these investors properly. Neither did DHA Multan have a verification system like Lahore, nor was the property transfer system complete enough to appear transparent. As a result, investors from Lahore, Islamabad, and Karachi began to withdraw due to this mismanagement.”

When investors panic

Once again, if you bought a plot in DHA Multan with the intention of building a house on it you shouldn’t be too worried. The value of your property is around as much as you paid for it and development work is going smoothly and at a good speed. But if you wanted to make a quick buck then we’re afraid the situation is a bit bleak for you and your best bet right now would be breaking even — essentially no different from what would have happened if you had kept your money locked away safely in a bank’s current account, that does not offer any mark-up.

One investor, preferring to remain anonymous, revealed that they invested in three plots within DHA Multan back in 2017, with a commitment to paying annual quarterly instalments for the development of each plot. They recalled the high optimism and favourable real estate conditions in 2017, which encouraged many to invest quickly.

“Being from Islamabad, I was persuaded by a DHA property agent to invest in Multan. I perceived no risk, given my familiarity with DHA’s operations in Lahore, Islamabad, and Karachi, where I had previously invested profitably in Lahore’s DHA projects. My visit to DHA Multan further convinced me of its promising future, leading me to book three plots of one kanal, ten marlas, and five marlas, respectively. However, the post-2018 elections period, coupled with the impact of COVID-19 and shifting political and economic landscapes, gradually cast a shadow of risk over my investment.”

When the investor was asked about the risks to his investment, they informed that there were already reports suggesting that the market situation of DHA Multan was not improving and investors were trying to withdraw their capital. The investor admitted that he had paid some but not all of the development instalments for his three plots.

“In fact, most investors never plan on building a house on their plot, or even keeping the plot till the society is completely developed. For most the idea is to sell the plots for a profit, and therefore, many investors choose not to pay the instalments of development charges on time, and only pay them in full when they are about to sell the plot. Investors generally prefer not to spend more money from their pockets. They intend to pay the development charges from the money received from the buyer at the time of sale. But right now, the prospect of profit is far-fetched; I would be lucky if my plots even get sold. Due to the declining market, many investors have either not paid any development charges to DHA Multan or stopped after paying some instalments.”

As a result, investors are receiving multiple threatening calls from DHA Multan, warning that their allotments would be cancelled if they didn’t pay the development charges, which they considered an injustice. “In 2017, the price for a one kanal plot ranged between Rs 55 lakhs to Rs 65 lakhs, and Rs 21 lakhs in development charges were due. And given the current market conditions, there seems to be no interest in buying these plots, and i do not have the money to pay the development charges. And even if I did have the money, it would be stupid of me to put it here,” explains another investor.

On the other hand, Colonel (Retd.) Sarfraz Nazar, Director Marketing of DHA Multan, speaking to Profit, denied the allegations and clarified that “it is not our practice to make threatening calls to people about cancelling their bookings.” The Director of Marketing stated that many people were allotted plots in 2017. At that time, the development charges for a one kanal plot were Rs 21 lakhs, which investors were supposed to pay through quarterly instalments over a year and should have completed the payments by 2021, but many investors did not do so.

What will DHA do about this? 

And this is what it all boils down to. An official from DHA, who preferred to remain anonymous, has disclosed that in response to the current market conditions, DHA Multan recently issued a specific type of advisory letter. This advisory letter contained a warning, emphasising that plot prices should not drop below a certain threshold. The primary objective behind this action was to provide reassurance to investors that their investments were secure, and they had not incurred any losses. From a technical standpoint, the current plot prices in DHA Multan closely align with DHA’s official rates.

The aforementioned official pointed out that the major disruptors in the property market were property dealers who were causing turbulence in DHA Multan’s market. Major Bukhari, the spokesperson of DHA Lahore also affirmed this and clarified that regulating plot prices was not within DHA’s purview. DHA announces the official plot prices and adheres to the prescribed rates. However, once the plots enter the open market, property dealers often manipulate prices. In this industry, there are significant players with substantial investments who initially create a market decline narrative, purchase at lower prices, and subsequently generate hype in the market to sell at higher profits.

This of course is a heavy handed if temporarily successful approach to the matter. Even an entity like the Defence Housing Authority is beholden to market forces and cannot browbeat prices to be what they want. The reality is that the investors that put their money in DHA Multan actually had nothing to do with Multan which is why the prices have fallen to what they are. 

The real method that DHA seems to be following other than attempts to stabilise the price by force is to encourage people from Multan to build in the society. The more a housing project develops and becomes lived in the more its value increases. According to Colonel, DHA Multan has introduced several waiver schemes during this period. For instance, if someone is late in their payments and wants to deposit the payment, no surcharge will be levied.

“We offered a surcharge waiver scheme to people this May. Even today, we have a waiver that if someone pays their complete development charges to us now and takes possession of their plot, and completes construction of their house by December 2024, they will be reimbursed 100% of the development charges. People are availing of this scheme. We have divided this scheme into three stages. If someone builds a grey structure, they will get a 30% refund. Similarly, if someone renovates their house, an additional 30% will be reimbursed, and if someone resides in this constructed house for two months, they will be reimbursed the full 100% of the development charges.”

On top of this, they are introducing other incentives to encourage building. “In the current market scenario, investors are uncertain about their next steps,”says Wattoo. “This has led DHA to introduce incentives like the 100% development charges waiver, aiming to motivate more people to construct homes and populate the area, in turn, revitalising the market. Conversely, this also presents a golden opportunity, as the low plot prices now are expected to rise over time.”