Real estate is like a giant game of Monopoly but in real life. Instead of buying colourful little properties on a game board, you’re buying real, tangible properties like houses or office buildings. And just like in the game, the goal is to make as much money as possible. You can make money by renting your properties to tenants or selling them for a profit. Unlike in the game, the best part about real estate investment is that you can visit and explore your real estate properties.
If you’re a beginner in this game, don’t worry; we have you covered. In this blog, we will tell you everything you need to know about real estate investment, ways to invest in real estate and the pros and cons of making real estate investments.
Real Estate: Why You Need to Invest?
Real estate is the bomb.com when it comes to investing. First of all, real estate is a real, tangible thing that you can actually see and touch. Unlike other investments that exist only on paper, you can walk through your property and say, “Hey, I own this!” Secondly, real estate has historically appreciated over time. So not only can you enjoy living in or renting out your property, but you can also make some serious dough when you sell it later on. Plus, owning a rental property can provide a steady stream of passive income, which can help fund your future dreams and adventures. And let’s not forget about the tax benefits – real estate investors can take advantage of deductions for mortgage interest, property taxes, and depreciation.
Best Ways For Real Estate Investment in Pakistan
If you’re new to real estate investing, knowing there is no one-size-fits-all approach is important. However, real estate investing at its core involves buying, selling, or leasing property to make a profit. There are many different ways to invest in real estate, from buying a rental property to investing in real estate investment trusts (REITs). Each approach has advantages and disadvantages; the best investment method depends on your goals and circumstances. Some of them include:
- Real Estate Investment Trusts (REITs)
- Buying Files
- Buying Plots
- Rental Yield
- Investing in Vertical Projects
Real Estate Investment Trusts (REITs)
Imagine you’re at a big party and want to invest in real estate, but you don’t have enough money to buy a whole building on your own. So what do you do? You team up with a bunch of your friends and pool your money together to buy a property. That’s basically what a REIT is! A group of investors pool their money together to buy real estate assets. In Pakistan, REITs were introduced in 2015 and have been gaining popularity ever since. They allow investors to invest in real estate without buying a whole property. Plus, they offer some tax benefits too. There are two main types of REITs: public and private.
Real Estate Investing: Public REITs
Public REITs are traded on the national stock exchange, which means that anyone can purchase their shares just like they would with stocks. Public REITs are a more accessible investment option for individual investors, as they typically require lower capital investment.
Real Estate Investing: Private REITs
On the other hand, private REITs are not traded on the stock exchange and require higher capital investment than public REITs. This is why private REITs are typically only available to institutional investors, such as pension funds, insurance companies, and large investment firms.
In 2015, the Securities and Exchange Commission of Pakistan (SECP) introduced new regulations for Real Estate Investment Trusts (REITs) in the country. However, despite these regulatory changes, there has been limited uptake of REITs in Pakistan since then. Currently, the only REIT Management Company (RMC) operating in the country is Arif Habib Dolmen REIT Management Limited, which offers rental and developmental REITs to investors.
Buying Files
Real estate files are pre-development property documents issued before a locality’s development. Buying files is a great way to invest in real estate in Pakistan because it’s like buying a ticket to a movie before it’s released! Like how people buy movie tickets in advance to secure their spot, buying a file allows you to secure your spot for a not yet constructed property. This means that you can often purchase the file at a lower price than the final cost of the property once it’s completed.
Many real estate websites like Lamudi.pk offer file listings of plots if you are interested in investing in real estate. These listings allow property investment before it is fully developed or built. You can also consult with a real estate agent specialising in pre-development properties, as they can provide valuable insights and guidance on the best property investment opportunities in your area.
Buying Plots
Buying plots in Pakistan is a popular way of Real Estate Investing, as it allows for the potential appreciation of land value over time. When you buy a plot, you own the land and have the option to build on it or sell it at a later time. The demand for land in Pakistan is high, especially in major cities like Karachi, Lahore, and Islamabad, which means that the value of land can increase significantly over time. Buying plots in Pakistan can be a relatively low-risk property investment, as land value tends to be less volatile than other investments such as stocks.
Real estate, particularly land, has proven to be a profitable investment. One of the key advantages of investing in land is that its value generally increases with time. This means that if you purchase a plot of land, you can expect its value to appreciate over time, allowing you to sell it for a profit in the future. Location also plays a very crucial role. You can find these beautiful Parks in Karachi.
In Pakistan, many people have done successful Real Estate Investing by buying and selling land plots. By investing in a plot of land and holding onto it for some time, they can capitalise on the appreciation in value, earning significant profits with relatively little effort. If you are interested in starting this type of real estate business, it is possible to start small with just one plot of land and gradually build up your portfolio over time.
Rental Yield
Regarding Real Estate Investing, rental yield is the rental income you receive from a property divided by the property’s value. In Pakistan, rental yields can be quite high, especially in cities like Karachi and Lahore. It is one of the easiest and most profitable real estate investment options. Investing in and renting a property can earn a steady income stream. Plus, if property values appreciate over time, you could also see a significant return on your investment if you decide to sell the property later.
Let’s say you invest in a small apartment in a developing area of Lahore, Pakistan, for PKR 5 million. You rent the apartment for PKR 30,000 per month, which translates to an annual rental income of PKR 360,000. With an initial investment of PKR 5 million, your rental yield would be around 7.2%.
Let’s assume the property appreciates by 10% over the next five years. After five years, the property would be worth PKR 8.05 million. If you continue to rent the apartment at the same rental rate, your annual rental income will increase to PKR 432,000, translating to a rental yield of 5.4%.
While this is just a hypothetical example, it demonstrates how rental yield can provide a consistent income stream over time while allowing for potential property value appreciation.
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Real Estate Investing in Vertical Projects
In recent years, there has been a significant increase in the trend of high-rise buildings in Pakistan. This shift in preference is not only limited to individuals opting for apartment living over traditional houses, but it has also opened up great opportunities for real estate investment in the country. Here’s why investing in this project could be a great decision:
Firstly, investing in an apartment project can provide a steady source of income. You can generate regular rental income to provide a stable cash flow by renting out the units to tenants.
Secondly, apartment projects are generally easier to maintain than other real estate types. With multiple units in one building, maintenance can be centralised and streamlined, making keeping the property in good condition easier.
Thirdly, apartment projects can be developed and completed faster than real estate types. With a team of skilled professionals, the project can be completed relatively quickly, which means you can start generating income sooner.
Finally, the saleability factor of apartment projects is high, especially in Pakistan’s growing urban areas. As demand for housing continues to increase, apartments are becoming a more popular choice for buyers. If you decide to sell your investment in the future, you’ll likely find a buyer quickly.
Overall, investing in an apartment project in Pakistan can be a smart choice for those looking for a steady source of income, easy maintenance, fast development, and a high saleability factor.
Pros and Cons of Real Estate Investing
Real estate can be a great investment option for those who are willing to put in the time and effort to research properties and manage their investments. However, like any investment, there are risks involved, so it’s important to do your due diligence before investing. Here are some pros and cons of real estate investing.
Pros
Potential for appreciation: One of the main benefits of real estate investing is the potential for appreciation or an increase in value over time. This can result in significant profits when you sell the property.
Cash Flow:
If you invest in rental properties, you can earn regular income from tenants in the form of rent. This can provide a steady stream of passive income.
Tax Benefits:
Real estate investors can take advantage of a number of tax benefits, including deductions for mortgage interest, property taxes, and depreciation.
Hedge Against Inflation:
Real estate can be a hedge against inflation, as rents and property values tend to increase over time.
Diversification:
Investing in real estate can help diversify your property investment portfolio, which can help reduce overall risk.
Cons
Capital Requirements:
Real estate investments typically require a large amount of capital upfront. This can make it difficult for some investors to get started.
Market Fluctuations:
Real estate values can fluctuate based on market conditions, which can affect your return on investment.
Property Management:
If you invest in rental properties, you will need to manage the property and deal with tenants. This can be time-consuming and stressful.
Liquidity:
Real estate investments are not easily liquidated, which means it can be difficult to sell the property quickly if you need to access your capital.
Risk:
Like any investment, real estate investments come with a certain amount of risk. Market conditions, tenant issues, and other factors can affect your return on investment.
In Pakistan, there are multiple options available for real estate investments. However, it is important to consider each option’s pros and cons before making any investment decisions. It is also important to conduct extensive research to ensure that you are making informed investment choices.
Please note that the investing information provided on this page is for educational purposes only. Lamudi pk does not offer any advisory services, and we do not recommend or advise investors to buy or sell any particular stocks, securities, or other investments. We encourage all investors to seek professional advice before making any investment decisions.