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Discovering infrastructure and real estate development under CPEC

Infrastructure development is one of the main pillars of economic growth of any economy and China Pakistan Economic Corridor being one of the largest project of its kind witnessed the transformational change in almost every sector of Pakistan’s economy and like other sectors it also brought revolutionary change in real estate and infrastructure of Pakistan through linkage of Gwadar and Kashgar. This linkage, change the dynamics of real estate and it is the time that foresee the increasing trend of this sector, which is obviously transformed into employment opportunities and development of allied industries in near future. CPEC impacts Pakistan real estate through improving income per capita at (purchasing power parity). Pakistan is spending more than one billion rupees on the improvement in the quality of roads that can increase per capita income of the people by Rs.371 on a permanent basis as spending on infrastructure can bring out the people from the absolute poverty and in my opinion this mechanism is more powerful than subsidies and transfer payments, because it provides a sustainable solution of the poverty.

CPEC provides the doable modes of resources to develop the required infrastructure. This corridor connects Muslim dominated city in eastern China–Kashgar with Gwadar port in Pakistan. The construction of this port at a strategically important town of Gwadar is in progress. The port is projected to be the hub of an energy and trade corridor to and from China and the Central Asian republics. Gwadar is strategically located on the western end of Baluchistan coast on the opposite end of the Gulf of Oman, which is an important route for oil-tankers bound for Japan and western countries out of Gulf. From Pakistani point of view, the development of Gwadar free port is one of the major strategies to revolutionize the economic growth of Pakistan. It is in fact, a multi-dimensional strategy, which covers the international linkages in trade and investment. Since outflow of goods from western China and Central Asia reaching Gwadar passes through this overland trade route, Pakistan could earn millions of dollars a year in terms of port and cargo handling charges. There are also freight charges for import cargoes and export goods.

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Now, CPEC is recognized by its policy makers as the ‘only’ source to accelerate economic growth in the shortest time. World Bank has indicated that poor availability of electricity is a main constraint to economic growth and investment in Pakistan and it is a general perception that Pakistan’s electricity shortage is a major hindrance to foreign investment. The Chinese investments in Pakistani infrastructure and power projects lead to break the vicious cycle and accelerate the growth and investment in various sectors including construction, power, steel, cement, chemical, mining, food, tourism, transportation and banking and finance.

Moody’s Investors Service described the CPEC as a “credit positive” for Pakistan. According to the Asian Development Bank, the CPEC connects economic agents along a defined geography. The CPEC is a collection of projects currently under construction at a cost of $46 billion, which is intended to rapidly expand and upgrade Pakistani infrastructure, as well as deepen and broaden economic links between Pakistan and China. While economic opportunities largely benefit Pakistan, the CPEC’s importance to China’s geopolitical and economic goals is reflected by the inclusion of the project as part of China’s 13th five-year development plan and the project was considered as an accelerator of economic growth, a mean of the inter-provincial linkages and connectivity. Along with the economic benefits it also impact on socioeconomic conditions sharing land and natural major sectors such as construction, cement, energy, real estate, logistic services, transportation, banking and finances, auto and allied services, technical and vocational education, health and pharmaceutical, chemical, security services, airline industry, shipping industry, telecommunication, engineering. Reducing unemployment existing GDP growth rate growth in GDP by 8.5% Inflow and growth in investment incremental growth in GDP by 3.5 improving business competitiveness greater participation in globalization, cultural adaptation and people connectivity improving doing business indicators incremental growth in GDP by 2% incremental growth in GDP by 1.5% resolving energy crises but at the same time CPEC led several apprehensions and controversial debates and arguments having severe ambiguities like:-

  • CPEC is a part of a great international power game, which has deep-rooted implications for the region. The economic and strategic interests of Pakistan, China, Iran, Afghanistan, Central Asian States, the United States and India may be affected.
  • China Pakistan Economic Corridor leads to the changes in the patterns of industrial and commercial development in Pakistan by means of newly growth centers and urbanization drive in the country. The cities adjacent to the corridor and proposed economic zones gain the values. Consequently the development ranking of the cities in Pakistan could be changed, which affects the comparative prices of the properties and patterns of investment in real estate sector. The newly industrialized cities and commercial centers generate additional capacities for employment creating opportunities. This view created a ‘Western versus Eastern Route’ controversy.
  • CPEC will change the ethnic composition of the population in Balochistan because a large scale internal migration is expected. The changing in development ranking and new employment opportunities in the areas adjacent to the corridor is the main cause of expected relocation of population.
  • Inflow of Chinese investment and business enterprises adversely impacts the interests of business community in Pakistan. It covers the signing of the FTA with China and flooding the Chinese products deterioration in local Investment and migration of Chinese labor to Pakistan.
  • Another contradicted view is that the project is not financially feasible for Pakistan as the country has to pay higher cost of financing because of the unwise negotiation with Chinese investors and over estimation of project cost. Pakistan has to pay higher cost.
  • Some segments have indicated the element of corruption and bad practices in the project. It indicates that the transparent mechanism was not followed in the negotiations and contracts with Chinese firms.

There is no doubt in the fact that China’s position is much better than Pakistan in components of financial development including business environment, market access, banking services, non-bank financial institutions (NBFIs), and professionalism in business sector. Banking system stability is the only component where Pakistan’s rank (22nd out of 62), which is higher than China’s rank (placed at 55). How Pakistan maintains this supremacy over China depends on the autonomy and independency of monetary and banking policy but the effect of CPEC on Pakistan’s economy will be huge. It would be a reason for setting up a lot of industry thus creating many jobs.

As per the findings of Harvard International Development Research Department, the next 10 years annual development rate of Pakistan would rise to 5.07%. It will be the second most elevated in Asia and with an economic boost in the country, the demand for accommodation would certainly rise and a huge demand of land would be needed to fulfill. With more individuals being able to buy property, the real estate sector would thrive. The true impact would be witnessed after 2020 when the road belt is complete and becomes functional.

The fact that CPEC is a joint venture between China and Pakistan means that many Chinese and Pakistani engineers would be deployed in Gwadar and along the lengthy belt. This is good news for the real estate sector as accommodating them would require establishment of small cities along the belt. The land thus would be required in plentiful to build safe housing societies with all the amenities. Gwadar being the ultimate port would develop into a major city just like Karachi. Gwadar, Lahore and Karachi would be the epicenter of after the completion. Property in these major cities will witness an enormous boom as there would be a need to accommodate not only the citizens but foreigners as well. It is very clear that CPEC will play a vital role to grow Pakistan’s economy and will eventually effect our real estate sector as our GDP increases and development of industry and Chinese immigration and the direct effects of real estate is visible in 3 to 5 years at the max and in 7 to 10 years we can expect a major boom in the property prices and previous trends in other countries suggest that residential and commercial properties will be the main focus area of investment by China but few restrictions are expected to be imposed by Government of Pakistan for this kind of investment but assuming comparatively fewer restrictions for Gwadar we expect biggest impact there and the decade will come when the property of Gwadar will appreciate multiple times as compared to current.

Ms. Urooj Aijaz (Faculty Dept of MS, BBS-KC Bahria University Karachi/MD Innovation Summit)

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