Real Estate Investment in Pakistan | Why You Should Invest?
- November 30, 2022
Contents
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’s a whopping statistic but not surprising, as real estate investment in Pakistan proves to be very lucrative, based on steady positive forecasts.
This article provides the most comprehensive guide for property investment in Pakistan, as we discuss what real estate investment is, the pros and cons of investing in real estate in Pakistan, which real estate projects in the country are best to invest in, how real estate investment works in general, what to consider when entering the field, 2023 forecast, factors that affect the sector, and more.
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’s 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 to be 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 You Should Start Investing in Pakistan Real Estate Now?
There are myriad reasons to invest in real estate in Pakistan, both for local and foreign investors alike. For one, with the robust inflation, real estate serves as a barrier. Every week, inflation in Pakistan is steadily increasing, but times like these are also great for real estate investment.
As the value of the Rupee is declining, investing in real estate serves as financial protection. Rental prices, appreciation, and overall profits from property businesses increase dramatically alongside, as property value is always higher than the inflation rate. Real estate assets prove to be the best way to take advantage of the inflation and protect your capital as much as possible.
And it doesn’t stop at that. We provide more reasons for how appealing it is to seize investment opportunities in Pakistan once investors are capable of taking the risk. However, no matter how promising the ROI can be, it is relative to how much one knows about navigating the business. Here are more reasons for investors to consider real estate in Pakistan:
Stability
Unlike other types of investments in Pakistan, such as shares or stocks, property investment is relatively stable, and the value appreciates over time, regardless of the robust inflation in the country. 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 them 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. Moreover, Pakistan’s economy is positively heading to stability, which will reflect in the country’s real estate sector over time.
Currently, there are top-tier construction developments and projects ongoing and have been completed in Pakistan. Residential and commercial properties grow in quality and value, forecasted to continue in such direction over several years, all of which are really beneficial to both sellers and buyers.
Guaranteed ROI
Real estate can be a source of active and passive income. Renting out a property provides a significant amount of income in Pakistan now, compared to putting them 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 in Pakistan runs between 7 and 10 per cent. Properties generally appreciate on the same annual basis and differ at the increase. For example, investors purchasing a property from Ramada Plaza by Wyndham in 2018 would get double its original price for selling by 2022.
Increase in Foreign Investment
Since 2018, Pakistan has been collaborating with international companies on multiple projects. Plenty of foreign companies have started to see the promising potential of real estate investment in Pakistan, knowing that it will increase in the years to come.
The country’s standing has been on an international level, and this has led to so many foreign investors becoming interested not just in real estate but in many other areas as well. From that time forward, the Pakistan real estate market has been ever brighter and more transparent. Investing as early as now, investors will get to partake in this sector’s whopping increase in the future.
Tax Benefits
In Pakistan, investors enjoy tax deductions, such as 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.
The 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 industry, 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, which proves true not just in Pakistan but in all countries. Alongside full ownership, they have the choice to keep it for retirement, such that they rent it out to earn retirement cash flow.
The longer they hold their property for themselves, too, before selling increases its value in astounding amount. They can dispose of their property for even more than twice its original price over the years.
What are the Disadvantages of Real Estate Investment?
No matter how appealing real estate investment is, it also has several disadvantages. They could be the following:
- They cannot get liquidated quickly
- Waiting for prices to increase can be 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
Which Real Estate Projects Are Best for Property Investment in Pakistan?
Investors in Pakistan real estate usually invest in Lahore, Karachi, Islamabad, Gawadar, Multan, and Gujranwala, which are all major cities and offer the best accommodations to occupants. Currently, several top-tier projects are ongoing in the country, which includes the following:
Blue World City
This is a real estate investment project in Islamabad or Rawalpindi led by the Blue Group of Companies. Blue World City is a luxury housing development good for both residential and commercial investment purposes. It’s the perfect community for those who want to live away from the hustle and bustles of the city, and all the better since it is near the New Islamabad International Airport.
Saffron City Rawat
Located in Rawat, Islamabad, Saffron City is a project that aims for a smart lifestyle whilst maintaining connection with nature. Saffron City projects usually incorporate urban forest style with orchards, parks, golf course, and more. This is the best option for investors who want to have a natural habitat for living alongside smart technologies and advanced architectural science.
Capital Smart City
With people moving out from rural to urban areas, especially the capital city Islamabad, Capital Smart City aims for sustainable, affordable, and quality housing with a modern lifestyle. This project is led by Future Development Holdings (FDH) and Habib Rafiq Pvt Ltd., located just 5 to 7 minutes away from Islamabad International Airport.
Lahore Smart City
A mega real estate project in Punjab, Lahore Smart City ranks as the fifth Smart City project in Asia and second in Pakistan for many reasons. As a Smart City, it paves the way for the future’s urban landscape and guaranteed return of investment. Facilities and amenities range from basic to luxurious, including cafes and restaurants, malls, playgrounds, and, most importantly, access to healthcare.
Citi Housing Gujranwala
Citi Housing Gujranwala is established by Citi Developers. The project offers commercial and residential plots for affordable prices, all the whilst providing a high-standard and luxurious lifestyle through modern amenities and access to enormous facilities and beneficial spots. Investors can avail of the plots at easy instalments and flexible payment plans, and most especially, receive huge profits.
Park View City Islamabad
Park View City Islamabad is great for both short- and long-term investments. Located in the capital city Islamabad, it takes pride in being close to the three main roads in the city, just right across the Bahria enclave, and easy access to Chak Shahzad and Bani Gala. Its close proximity to highways and surreal landscapes makes it a great investment with potentially enormous returns.
La Maison DownTown
La Maison Downtown Islamabad is a project that aims to foster a sense of community, providing residents with facilities and services that foster social connections. It offers a blend of desirable features such as location, amenities, security, and eco-friendly design. It is a highly sought-after investment opportunity with a strong demand for real estate and high appreciation potential.
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 and how to maximize their property and the like for higher return.
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, most 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. Huge income can be obtained through ancillary investments.
What to Consider While 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 grows 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, and TV shows, all 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 perfect property 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, the neighbourhood, amenities, etc. They need to make sure it’s 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 and take loans or 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’s 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 the while making sure that any project that they are taking an interest in are all regulations-approved.
Proper Purchase
When they have narrowed down their choices, it is time to buy a property, making sure that they adhere to every legal requirement and get everything evaluated by a lawyer. 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
When the property reaches its highest value potential, it’s high time they sell it. 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’s 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 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 much as complicated and hassle 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 don’t fall for those marketing accumulation schemes.
Forecast for Pakistan Real Estate 2023
In 2022, the real estate market still proved to be a little unstable, without major growth yet for both commercial and residential sectors, mainly due to Pakistan’s political state. However, amidst the robust inflation, the country’s demand for real estate increased, with the housing and construction industry allotting a budget of Rs34.6 billion ($212.7 million) for 2021 to 2022 and increasing property value. This is expected to soar even more by 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.
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, with no signs of a slowdown. In fact, Pakistan’s economy is seen to have a strong recovery.
Four or five years of holding the property before selling, as per historical evidences, generate a greater return on investment. Real estate investors in Pakistan will start seeing their home construction projects as serious investments and hold them for long until they can sell them for huge profits.
Factors that Affect Pakistan Real Estate
Aside from political and economic factors, many others determine the course of Pakistan’s real estate, including the following:
Pakistan Politics, Economy, and Real Estate
The healthier the political status, the more the economy flourishes. However, in 2022, political upheaval has been intense in Pakistan, which affected businesses directly and indirectly, especially in the real estate sector. This unstable political environment played a role in the real estate sector, resulting in its slight instability in 2022, as well as economic conditions.
Just like every other country, as per World Bank records, Pakistan allocates 60 to 70 per cent of its wealth to real estate assets, which means the country’s real estate sector amounts to 300 to 400 billion dollars.
The new political system in Pakistan has to settle down, setting aside the legal processes. With a lot of postponements, real estate developers have to wait for their legal paperwork, delaying the work. However, this didn’t lead to panic in the market, as the economy shows a good forecast of an increase in 2023.
Pakistan Cities, Demographics, and Real Estate
There are myriad investment opportunities in Pakistan, especially in the major cities, which yield higher ROI than others, in which investors are currently flocking to find the perfect property to invest in.
The demand for real estate in these cities is ever-increasing in the country, as facilities and good employment opportunities are available. Apparently, the higher the demand, the higher the price. More buyers will bid for the property, increasing its original price even more.
Demographics also play a huge role in Pakistan’s real estate sector, and the country has two major systems—the joint family and the nuclear family. The joint family system demands a larger home, which explains why the average size of Pakistan homes is way larger than that of other developed countries.
Pakistan Budget, Taxation, and Real Estate
For the 2022/23 fiscal year, the Pakistan government allots Rs9.502 trillion for the overall budget. Properties with value that exceed Rs25 million will be subject to 1 per cent property tax for those in the rental business. This doesn’t apply to homes used for the main residence.
The new budget includes a tax rate increase for filers and non-filers too—2 per cent for the filers whilst 5 per cent for the non-filers, in hopes of encouraging non-filers to become registered filers.
Capital gains tax (CGT), on the other hand, now favours property investors, as the period on which they don’t pay CGT is extended from up to four or six years, so they can hold their properties for as long as within this period without incurring CGT.
How Legend Properties Can Help in Your Investment Venture
Legend Properties is a real estate expert that has been helping several clients succeed in the industry. We help make their goals clear, do market research and analysis, and guide them to trading in the market to their advantage. There’s a lot about real estate investment in Pakistan we want you to know about, and the best time to invest now. Reach us today for help!
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