Dead Capital

KARACHI: Efficient management of state-owned land and its use that is in line with the needs of cities is inevitable. If it is underutilised or used for non-productive purposes, then it becomes a liability that not only costs the state but also restricts the development of cities, according to a report on “Dead capital” by the Pakistan Institute of Development Economics.

Since a majority of the state-owned land in Pakistan is found in or near city centres, the efficient management of these resources is crucial.

Unfortunately, the way these resources are managed in Pakistan is a classic example of dead capital, it added.

“Dead capital” is a term used by Hernando De Soto in his book “Mystery of Capital”. He labelled those assets as dead capital that are underutilised and are used for unproductive purposes — construction and the use of land for single-storied housing when there is potential for high-rise construction, using land with high market value at prime locations for non-economic activities, etc.

Former prime minister and Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan said that the value of this dead capital, only in the urban areas, is around Rs300 billion. But little has been done so far to unlock this dead capital, which possesses the potential to generate revenue along with enhancing the much-needed economic growth.

A substantial portion of the state-owned land is used for government employees’ housing, official residencies, etc.

According to a recent PIDE study, these government housing occupy around 86 acres of state-owned land in only G-6/1, Islamabad.

The study suggests that a significant portion of dead capital can be unlocked with the provision of vertical expansion of the city by the authorities and by transforming these single-storied houses into high-rise buildings.

According to estimates, the current houses can easily be managed in six high-rise buildings, which will free up around 77 acres of land. This will enable the authority to fetch a net revenue of Rs52.2 billion.

The estimates also suggest that this intervention will not only generate local economic activity but will also increase the GDP growth by 0.09 per cent annually, provided no sludge (bureaucratic red-tape, causing delays and costs overruns) is involved.

The above is just one example of what can be achieved by smart management of the public assets. But this requires a realisation on the part of the government about the immense potential that these resources have and how to unleash this potential.

As with the increasing population of Pakistan and the scarcity of land, vertical construction of cities is the way out rather than horizontal expansions.

The intervention suggested in the study is not unprecedented. Reducing the size of the property holding and disposing of the underutilised public properties is a practice adopted by both developed and developing nations.

In 2010, the UK set up a government property unit with the aim at managing the estate efficiently. According to its National Audit Office (NAO) 2017 report, it raised £2.5 billion by selling the state land and properties and reduced the state’s annual spending on these estates by £775 million.

India recently announced a plan to sell state assets worth $81 billion within the period of the next four years.

Pakistan also needs to take initiatives to manage the state-owned real estate efficiently to ensure full utilisation of these resources.

The government can start by forming a database with a centralised record of the state land and its entities, telling the proportion of the land held. A part of the problem is also associated with the valuation of the land held by the state, which currently ignores the market value and opportunity costs.

The land’s current use and value should be assessed by a team of professional asset management experts instead of civil servants, after which the land must be used with an aim at achieving the maximum utilisation and as per the needs of the area.

The excess underutilised land held by the state better be disposed of to the private sector for high-rise development.