Real estate is one of the best and safest investment opportunities in Pakistan.
There are many reasons to invest in real estate. People are usually confused about investing in real estate or stocks. Real estate investment not only provides you with a tangible asset but also ensures good ROI (return on investment) and financial stability in the longer run.
Interestingly, there are multiple options of real estate available in the market, each with its own distinctive characteristics.
The two most common real estate options in Pakistan are residential areas and commercial areas.
When we talk about the aforementioned types of property, we usually witness two kinds of groups.
Some people prefer residential properties over commercial properties and vice versa. In short, the ‘commercial real estate vs residential real estate’ debate is always under the limelight.
But, Why do People Prefer one Property over the other?
Think no further because we have come up with a comparison for you.
This article will go in-depth and analyze characteristics, pros and cons of both properties so that you can make a better and informed decision.
So, let’s get started.
Difference between Comercial and Residential Properties
First of all, you need to know about the basic difference between residential property and commercial property.
Residential properties and commercial properties have certain distinctive features that make them poles apart from one another.
Let’s have a look at these factors:
According to Investopedia, residential property is a type of leased property, containing either a single-family or multifamily structure that is available for occupation for non-business purposes.
On the other hand, commercial property is quite different.
According to Investopedia, commercial property refers to real estate property that is used for business activities. Commercial property usually refers to buildings that house businesses, but it can also refer to land that is intended to generate a profit, as well as larger residential rental properties.
Comparison between Residential vs Commercial Property
|1. Types||Homes, apartments, condos, flats||Offices, shops, warehouses, showrooms|
|2. Primary purpose||Accommodation||Business and investment|
|3. Opportunities||Accommodation or renting||Business and commerce|
|4. Capital required||Depends on location||Depends on location|
|5. Laws and regulations||Lenient||More strict|
|6. Pool of consumers||More||Less|
|7. Maintenance cost||Low||High|
|8. Lease time||Low||High|
Residential properties include homes, apartments, condos, flats and vice versa. These properties are usually smaller in the area as compare to commercial properties. Also, the number of units in a residential property is far less than the commercial property.
Similarly, in the case of commercial properties, you would generally find offices, shops, warehouses, showrooms vice versa. These properties are usually located on the outskirts of the city or in the industrial areas.
– Primary Purpose
As the name suggests, residential properties are usually made for nuclear families or joint families. The sole purpose of a residential area is ‘accommodation’.
People usually use these for living and renting purposes. Residential property is treated as a necessity, not as a business avenue or an investment opportunity.
On the other hand, commercial properties are acquired for business and investment purposes. For example, people get office spaces and shops to earn monthly income.
Every real estate type comes with a specific set of opportunities. The primary objective of a residential property is accommodation or renting. When the right time comes, you can even sell out your property to earn good returns.
Contrarily, commercial property is purely used for business and commerce. The shops and offices act as business centers and people use them for business purposes.
– Capital Required
Compare to commercial property, residential properties are smaller in size and the capital needed to acquire it is low. With 10 million rupees you can easily get a house in a posh area. Get to know the cost to construct 5 marla, 10 marla and 1 kanal house in Pakistan.
Whereas, if you want to get a commercial property at a good location, you need more money.
– Laws and Regulations
The laws and regulations associated with the residential property are different than commercial property. Residential property laws are more lenient and they tend to focus more on the rights of the tenants.
On the other hand, commercial property laws are strict and focus on equal rights. Both parties negotiate and come to common ground because this is how business works.
– Pool of Consumers
Due to an increase in population, the demand for houses is increasing at a fast pace. As a result, the pool of people looking for residential property is large.
That means it is easier for you to sell/rent out your house. In short, the demand for houses and other residential properties is more than the office spaces and shops.
The demand for office space, shops vice versa are dependent on market trends and the overall economy of the country.
If the market is doing good and the economic conditions of the country are satisfactory, then you will be able to rent out your space at a good price quite easily.
– During the Financial Crisis
Residential properties tend to perform better in financial crisis. The demand for these properties does not get much affected by extraneous economic conditions.
On the other hand, the demand for commercial properties is highly dependent on the economic and financial health of the country. In short, the prices may fluctuate more.
– Maintenance Cost
The maintenance cost of a residential property is low. The electricity, gas and other amenities cost you less as compare to commercial property. When you own commercial property, your tax bracket gets different.
Apart from the tax, you have to pay a larger percentage of security costs, electricity, water, gas and vice versa because the consumption of these things is more in a commercial property.
– Structure and Design
The construction cost of a residential property is different from a commercial property. Unlike commercial properties, the architectural design and interior of a house or an apartment are entirely different, leading to different costs.
A commercial property incurs different costs. For instance, you may have to incur warehouse costs, pipes and wiring costs, etc.
Commercial properties yield high returns. The residential properties can only earn through renting and reselling of property. If you own a commercial property at a business hub, you are good to go because the demand to acquire your property will be very high in the market.
– Lease Time
The lease time of commercial properties is longer. Usually, people do not lease out a residential property in Pakistan. They look for a house for sale or house for rent.
So, these were some of the key points of both properties. We hope these factors will help you in making a good decision. Before making any kind of investment in real estate, get to know the things to consider before investing in real estate.
Go through them and let us know if you have any queries. We will be glad to help you out.
None of the information published in this article should be construed as investment advice. We strongly advise our readers to always do their due diligence before investing in any project. It is the reader’s responsibility to know the laws regarding investments in their region.