Real Estate Investment in Pakistan
Written by: Neelam Shahzadi
Reviewed by: Majid Hussain
The real estate industry is booming by leaps and bounds in Pakistan. Every year, an estimated $5.2B goes to construction and real estate in the country, which is equivalent to 848,605,680,000.00 Pakistani Rupee. That is a whopping statistic but not surprising, as real estate investment in Pakistan proves to be very lucrative.
This article provides the most comprehensive guide for property investment in Pakistan, as we discuss what real estate investment is, why invest in real estate, how investing in real estate market works, what to consider when entering the field, its pros and cons, forecasts for the industry in 2023, further investment tips, and where investors can find available properties.
What is Real Estate Investment?
There are two main types of real estate investment in Pakistan—residential and commercial—where investors can buy and sell or lease out their real estate. To put simply, real estates are properties that consist of land and/or natural or man-made additions or renovations (homes, buildings, fences, trees, etc.).
Residential properties include single-family homes, multi-family homes, duplexes, condos, townhouses, and cooperatives, whilst commercial properties can be used as offices, restaurants, grocery stores, hotels, parking facilities, hospitals, shopping centres, theatres, and gas stations.
It is up to real estate investors what they do with their properties. Usually, they buy at lower prices and sell them when the value increases or they rent them out as residential or commercial properties. Investors in Pakistan usually take the following approach:
Buy Files
Long-term investors usually choose to buy files, which are documented promises of a plot (lot or land that has no allocation or owner yet). Once their files are finally linked to a developed or nearly finished plot, their rates increase gradually.
Buy Plots and Resell Them at Higher Prices
In this strategy, investors purchase plots, keep them on hold and under development, and then sell them when prices increase. This approach provides a hefty return on investment as long as they know how to gauge the market carefully and be patient.
Buy to Rent
Buying residential or commercial properties or purchasing a plot to be developed for any of those purposes and then renting them out can generate really handsome profits over time. Investors usually choose this approach as they remain the property owner, get fixed-rate income, and simply sit back as their property’s value increases over time.
Buy Land Expected to Be Developed
This is a riskier strategy and the least common, as investors buy land that they anticipate being developed in the future, hoping that developers will buy their property at a higher price for their projects. Hence, this works well with investors who have a long-sighted vision in the real estate market.
Why Invest in Real Estate?
There is a myriad of reasons to invest in real estate in Pakistan or in real estate overall. Real estate serves as one of the most effective hedges against robust inflation. Take, for example, property landlords. Their rental pricing also increases when inflation sets in.
Below are more reasons for investors to seize investment opportunities in Pakistan once they are capable for the risks. No matter how promising the ROI can be, there are still cons to it, which will be discussed further below.
What Are the Advantages of Real Estate Investment?
Stability
Unlike other types of investments, such as shares or stocks, property investment is relatively stable and the value appreciates over time. Real estate is the most secure option for risk-averse investors, as opposed to the stock market which can crash at any time and subject investors to losses.
It is the least volatile type of investment, and the value increases at a smooth pace. Investors can diversify their portfolios, so the risk of losing their money decreases.
Guaranteed ROI
Real estate can be a source of active and passive income. Renting out a property provides a significant amount of income compared to saving money in a bank and serves as an additional high source of income with high liquidity. Investors can get monthly and annual returns without much trouble in managing the property.
The average monthly ROI for property rental runs between 7 and 10 per cent. Properties generally appreciate on the same annual basis and differ at the increase. When investors purchase a property from Ramada Plaza by Wyndham in 2018, they would get double the price for selling by 2022.
Tax Benefits
In Pakistan, investors enjoy tax deductions, including deductions on mortgage interest, a way for the government to encourage more people to invest in the country. Real estate offers tax leverage for investors, protecting them against depreciation.
Amnesty scheme for the real estate sector was also approved in 2016 in response to the dwindling activity in the industry. This one-time amnesty requires a mere one per cent total charge on capital gains tax (CGT), advance tax, and withholding tax for their property transactions.
CGT rate will differ depending on which value is higher—3 to 6 per cent on the FBR value of the property or 1 per cent on the fair market value. The amnesty scheme affects fifty other industries relevant to the sector, giving property investors a real advantage in the business.
Ownership
One of the most appealing factors in real estate is being the owner and having complete control of the property. Alongside full property ownership, they have the choice to keep it for long, such that they rent it out to generate retirement cash flow.
What Are the Disadvantages of Real Estate Investment?
Real estate investment is surely lucrative, but it also has several disadvantages, such as the following:
- They cannot get liquidated quickly
- Waiting for prices to increase can take a very long time
- Investors may face legal issues or fraudulent activities
- Properties they own may still be subject to taxes
- Unexpected circumstances may decrease property value
How Do Real Estate Investments Work?
Real estate investment in Pakistan offers promising hefty returns of investment. Here are how investors get the return for their hard-earned money:
Property Appreciation
Property renovations, changes in the real estate market, and high real estate demands all lead to property appreciation. It may not be easy to predict, but expert market analysis and projections can help investors determine where to invest, how to maximise their property and the like for higher returns.
Cash Flow Income
Buying real estate and renting it out allows investors to generate excellent passive income. They can rent their property whether for commercial or residential purposes. Some even lease their agricultural land, providing them with massive profits.
Real-Estate Related Income
Real estate specialists earn huge profits from commissions, especially brokers, investors, or management companies. Brokers can earn huge amounts from helping a client sell or buy their property, whilst management companies can keep a certain percentage of the rent for the operations.
Ancillary Income
Ancillary real estate investments are items or spaces necessary for the property, such as office spaces, vending machines, or laundry rooms in rental properties. A huge income can be obtained through ancillary investments.
What to Consider Whilst Investing in Real Estate
Entering the real estate sector is never easy. There are several prerequisites before investors decide to get into the field. Here are some:
Knowledge
Investors need to have a sound knowledge of real estate as this industry evolves quickly. Real estate development and construction per se need to be high-quality. Investors can keep up with the latest trends through media, such as news, books, blogs, YouTube channels, podcasts, TV shows, and all else related to real estate.
Strategy
It is possible to generate lifetime income from one’s property. A practical, holistic strategy can make this happen. They will need to think about whether they would like to diversify their investment or focus only on one niche, operate in a partnership or as a sole trader, etc.
Vigilance
No one gets a good investment deal by luck. Investors will need to be very informed and ask around for more information, including a particular area’s prices, whether a house or shop is better, neighbourhood, amenities, etc. They need to make sure it is approved by the development authorities, thoroughly evaluate the property for any defects, and ensure that all documents are complete and valid.
Funds
The healthier the source of funds is, the better the returns. Some investors choose to use their savings, take loans, and other possible alternatives. Before they delve into real estate projects, they need to secure their funds first.
Tips on How to Properly Invest in Real Estate in Pakistan
It is best to start real estate investment the right way. Meeting the abovementioned prerequisites, here are how investors can successfully pursue the field:
Carefully Thought Investment Goals
Investors need to make their goals clear—how much time they can wait before they sell the property, whether to invest in the city they are currently living in or other cities, and exactly how much budget they can put up so they can do market research accordingly, etc.
Sufficient Research
After they have plotted out their goals or requirements, extensive research comes next. They can use a variety of resources to search available estate investment in Lahore or other cities in Pakistan, especially the rated top property portals, so they can have the best ideas on investment, all whilst making sure that any project they take an interest in are all regulations-approved.
Proper Purchase
When they have narrowed down their choices, they must ensure that they adhere to every legal requirement and get everything evaluated by a property laws specialist before buying. The property they buy must be promising appreciation, coming from tried and established communities.
Deciding Whether to Wait or Rent
When deciding how long investors should hold onto their property, they need to consider the project’s development stage, location, developer’s reputation, and general political situation. If they decide to rent it out, they need to find a reliable tenant and produce a signed tenancy agreement.
Selling Strategies
Selling the property is best when it has reached its highest value potential. They must look for many listings, compare rates, and then gauge the property’s value from the buyer’s and seller’s perspectives. As much as possible, they must meet the buyer in person and use token money for the preparatory stages.
They will then need to go to the authority or society’s office to verify the letter document for transfer and/or allotment. As sellers, they must make sure the transfer letter is directly issued to the buyer’s name. Moreover, to avoid legal issues, property sellers should avoid cash payments as much as possible and opt for pay cheques or orders instead.
Tax Compliance
Pakistan’s tax authority is becoming more restrictive, so filing tax returns promptly is crucial. They have been continuously changing the system to make tax filing easier for new investors, so the process may not be as complicated and hassling as before.
Trading Mid and Long-Term
The entire process of buying and selling can be very expensive, especially transportation costs. To avoid that, investors can choose mid- or long-term trading from one to five years of waiting before they sell their property to the market.
Avoiding High-End Marketing Campaigns
New investors are the most common targets for high-end marketing geniuses as they still lack real estate information and awareness. If they should take risks outside authority-approved areas, they need to make sure they do not fall for those marketing accumulation schemes.
Forecast for Pakistan Real Estate 2023
For 2023, the real estate gurus expect the development industry to become a massive player in Pakistan’s GDP. The record shows that the industry has increased the country’s economy by $1.5 to $2 trillion, and each year, real estate adds another $314 billion.
Despite the robust inflation, the country’s demand for real estate still increased, with the housing and construction industry allotting a budget of Rs34.6 billion ($212.7 million) for 2021 to 2022. This is expected to soar even more by 2023.
With residential and commercial properties increasing over time, gurus anticipate that more new real estate investments and developments will occur in the country by 2023.
Available Real Estate Investments in Pakistan
There is a myriad of investment opportunities in Pakistan, especially in the major cities. Investors may want to look for properties in Lahore, Karachi, Islamabad, Gawadar, Multan, and Gujranwala. Currently, projects in high demand include Bahria Town Rawalpindi, Park View City Islamabad, and Lahore Smart City.
The demand for real estate in these cities is ever increasing in the country, so investors are flocking to find the perfect property to invest in. It is best that they gauge all options and compare prices according to their goals and budget beforehand.
How Legend Properties Can Help
Legend Properties is a real estate firm that has been helping several local and overseas clients succeed in their investment ventures. We help make their goals clear, do market research and analysis, and guide them to trading in the market to their advantage. There is a lot about real estate investment in Pakistan we want you to be equipped about. Reach us today for assistance!
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