Simple Ways to Invest in the Real Estate Sector of Pakistan

Simple ways to invest in real estate sector of Pakistan

The property business in Pakistan has always been on top among other sectors. There are endless ways to invest in the real estate sector. However, it is not a piece of cake. It requires a clear understanding of investment with smart considerations. To be successful and earn profit through real estate, one must know the basics of real estate investment in Pakistan. Some of the most common investments in Pakistan are buying files, buying plots for resale at a higher value, buying land in anticipation of development, and buying property to rent. Being a developing country, Pakistan is open to adapting to the latest investing methods in the real estate sector and taking innovative ideas from other countries. The article discusses some simple and safe ways to invest and get higher returns on investment.

Simple Ways to Invest in the Real Estate Sector

Rental Properties

Owning rental properties is always a safe bet and a great opportunity for individuals with recreational skills and patience to manage the tenants. Although it requires a lot of investment, its long-term return is highly profitable. Moreover, substantial capital costs are needed to finance maintenance costs and cover vacant months. There are many pros and cons of having a rental property. It provides regular/monthly income, and the property’s value appreciates over time. It also maximizes capital through leverage. However, it is not an easy job to manage tenants and their problems. It can be a tedious job as they can potentially damage the property, which will be the owner’s responsibility.

Moreover, if the rental property is vacant for months, one can face a loss of income or reduced income. In Pakistan, the cost of living has consistently increased. According to law, there is an increase in prices and cost of living of around 10 per cent for residential buildings and 15 per cent for commercial buildings.

rental properties

Real Estate Investment Groups (REIGs)

REIGs are small mutual funds to invest in real estate properties. Typically, a real estate group builds or buys a set of apartments and allows investors to purchase from them and become a part of their group. In Pakistan, it is a good investment for people who want to own property but without the hassle of managing everything. Investing in REIGs creates a source of income and access to funding while adding to your real estate portfolio. An investor can own one or multiple building units, but the investment group collectively manages it. They handle maintenance and interviewing and problems of tenants and marketing/advertising. In return, they charge a percentage monthly. In this way, the investor and management have steady returns on investment without much hassle. The biggest benefit of investing in REIGs is that the real estate investment group lease is in the investors’ name, and all of the units pool a portion of the rent to guard against occasional vacancies. Thus, even if your unit is empty, you will receive some income that is enough to cover the costs. Like rental property, it gives a steady income, and its value appreciates over time. However, in a country like Pakistan, there are very few trustworthy groups with a high percentage of fees and managers. It is important to look out for fraud and carefully invest for higher returns.

Real estate investment groups

House Flipping

House flipping refers to renovating and repairing the property, increasing its value, and selling it at a higher price. It is not common in a developing country like Pakistan as new properties are being built rather than repairing old ones. However, revamping old buildings may be good for everyone. It is for people with significant experience in valuation, marketing and renovation. House flipping requires initial capital and the ability to carry out technical repairs. Real estate flippers are not the typical buy-and-rent landlords as they aim to sell the undervalued properties that they buy at less and sell quickly. The earlier they manage to renovate and sell, the earlier profit they will receive. In Pakistan, it is a great and upcoming strategy to quickly generate profit from real estate. There are many cons related to housing flipping as well. Initially, finding a discounted property that needs repairing is not easy. It requires time and money, along with luck and patience. Once it is found, the renovation and repair are highly time-consuming despite outsourcing the job to other workers as one will have to monitor every move. After the completion, selling the property at a good price and finding the customer is also time-consuming.

Moreover, the owner must pay additional costs and taxes while the property is vacant and on sale. The house flipping business is good as the investor’s capital is tied up for a shorter period, and there are quick returns. Yet, it requires a deeper knowledge with experience and a good real estate market situation.

house flipping

Real Estate Investment Trusts (REITs)

REITs are also like REIGs but on a higher level. Real estate investment trusts are a good place to start, and the most common type is an equity REIT. The company owns the income-generating real estate, and investors buy stocks in these companies and earn money. Such companies raise funds by selling shares or issuing bonds and use the proceeds to sell and rent out huge projects like shopping malls, buildings, warehouses etc. The dividends are paid out to the investors regularly, usually higher than many stock-based investments. Unlike REIGs, real estate investment trusts take ownership and manage the maintenance and rental logistics. The investor only earns as a silent partner. For a company to maintain its REIT status, it has to pay out 90% of its taxable profit in the form of dividends to the investors to avoid paying corporate income tax and facing losses. Thus, it is a solid investment for real estate investors for a steady income. In addition, REITs are highly liquid as they are exchange-traded trusts. In Pakistan, there are three types of REITS – Rental, Developmental and Hybrid.

Real estate investment trust

Online Real Estate Platforms

Online platforms are for investors who want to invest online in bigger deals. It is also known as real estate crowdfunding. It requires an investment of capital. However, not as big as buying a property outright. It also connects investors to real estate developers. Anyone can invest in single projects or residential/commercial deals and diversify investments in less money. Although it may take time, the liquidity of money and management fees may be high. It is a good platform for both parties as developers submit projects that need funding, and investors can choose to fund these with debt or equity. It creates a win-win situation as developers get the funds needed for their projects, and investors benefit without taking ownership. Pakistan is establishing many online platforms, and some of the top ones are, Graana, and Redbox.Estate, Jageerdar, and many more.

real estate online platforms Conclusion

To conclude, there are many upcoming investment opportunities and methods to invest in the real estate sector of Pakistan. Some simple ways include investing in REITs, REIGs, online real estate platforms, house flipping and rental properties. All these are safe bets as real estate investment is not a small amount, and an investor would always prefer to put his money in trustworthy platforms where the return is high and steady. Pakistan has the most potential in this sector, and people are ready to invest, and as it grows, the platforms are also increasing, leading to economic growth in all sectors.

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IMARAT Institute of Policy Studies

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