Property investment in Pakistan: Commercial Vs Residential Real estate in 2021?
Property investment in Pakistan is easily accessible, low-risk, and profitable compared to other forms of investments such as bonds, stocks, mutual funds, cryptocurrency, etc. While these are great forms of investment, real estate offers tangibility, ensures a decent return on investment and financial stability in the long run. Additionally, allows real estate owners to exponentiate their money.
To learn more about real estate investment in Pakistan, it is important to learn about the two major types of real estate. The two types of real estate investment in Pakistan are:
Residential real estate in Pakistan
Referred as Leased property for a single- or multi-family structure for living purposes. These are one to four-unit rental residences, for example, homes, apartments, condos, duplexes, and quadruplexes.
Commercial real estate in Pakistan
Referred as Leased property for business activities (i.e. intended to make a profit). These are five or more units, for example, offices, retail, warehouses, hotels, and multipurpose buildings.
In the real estate investment world, there is a heated ongoing commercial real estate versus residential real estate debate.
Which real estate investment in Pakistan is right for you?
Making the decision between commercial and residential real estate investment in Pakistan is not simple and can not be made overnight. Each option comes with its own set of benefits and challenges. The final decision has to be made depending on the investors’ short- and long-term goals, risk tolerance, liquid money, and time.
What are the stark differences between residential and commercial real estate investment in Pakistan?
Purpose of property investment
Usually, different kinds of people will lean towards different types of real estate investments in Pakistan.
The decision between residential and commercial real estate depends on the purpose behind your venture. Do you plan on using the property for your own accommodation or business needs? Are you looking to hold the property for resale at a higher value?
Residential properties are leased to individuals and nuclear/ joint families because occupation is their main purpose. People can use the property either for their own living needs or rent it out to others who need it. On the other hand, commercial properties are leased to business people for setting up ventures and/or other investment purposes. For example, buying an office space or a shop to set up a regular inflow of income.
Opportunities of each property investment
Each type of property investment in Pakistan is associated with its own set of opportunities. Commercial real estate investment has larger potential gains for its investor, while residential real estate investments allows owners to play an active role in the property.
Compared to commercial real estate investment in Pakistan, residential properties generally require lower capital to acquire them. In 2019, the following were the average house prices per square feet in the three major cities of Pakistan:
- Karachi: PKR 13,158 (US$ 93)
- Lahore: PKR 10,402 (US$ 73)
- Islamabad: PKR 9,985 (US$ 70)
Laws and regulations
Residential and commercial real estate investment in Pakistan has its own laws and regulations. The former is relaxed and tenant-focused. Whilst, the latter is stricter and focuses on equal rights. Both parties in a commercial real estate contract negotiations to a common ground.
Residential real estate owners have more freedom than commercial real estate owners in the following areas:
- Construction bylaws and
- Rental agreements
The demand for property investment
As the population increases, the demand for houses accelerates. This means that the number of people eyeing residential real estate investment in Pakistan is quite large. As a result, it will be much easier to sell or rent out one’s property.
On the other hand, the demand for commercial real estate (office spaces, shops, etc) depends on market trends and how the overall economy is doing. If the market is favorable and economic conditions are satisfactory, then it will be much easier to sell or rent out one’s space.
Value of property investment
The number of factors can increase or decrease the value of your residential and commercial real estate investment in Pakistan. This includes, but is not limited to,
- Neighbourhood, and
- Nearby amenities.
While the inherent value of residential properties does not differ too much, the value of commercial properties is affected by external variables. For example, during a financial or economic crisis, residential real estate would perform better while the value of the commercial real estate would drastically fall.
Before purchasing commercial real estate, make sure you do thorough research and evaluations on current and predicted real estate market trends so that you know where to smartly invest your money.
Other possible expenses
Other costs you might expect for residential and commercial real estate investment in Pakistan are maintenance, security, and taxes. Maintenance costs are lower for residential than commercial real estate. For residential real estate, utilities such as electricity, gas, and other amenities cost less compared to a commercial real estate setup.
As a commercial real estate owner, you are more likely to spend a larger percentage of your money on security costs than compared to residential real estate owners. And as for taxes, when you own commercial real estate, you pay from a lower tax bracket than residential property owners.
Structure and design
Construction costs between residential and commercial real estate investment in Pakistan will vary because of differences in the architectural and interior design of the house or office space. For example, a commercial real estate owner incurs warehouse, piping, and wiring costs while a regular residential real owner does not.
Returns of property investment
Compared to residential real estate investment in Pakistan, commercial properties have much more flexibility to yield high returns. There is an even higher return if your property is located at a major business hub because of the high demand to buy your property. Residential real estate owners only earn through renting or reselling.
Time duration of lease
The lease time of commercial is longer than residential real estate investment in Pakistan. Leasing out residential real estate is not a norm in Pakistan because people here mostly look to buy or rent our houses.
In conclusion, only you can decide what type of property investment in Pakistan is best for your needs and wants. You need to browse the market thoroughly to make an informed decision between what is most suitable: commercial or residential real estate investments. What some people usually do is invest in residential real estate and then slowly move towards commercial after getting a practical idea on real estate investment.