Real estate is one of the few investment opportunities in Pakistan where you will witness many options to invest in. The diverse options not only gives you full control over a tangible asset but also allows you to earn high ROI and rentals.
Now, in Pakistan, both residential and commercial real estate investments are becoming more and more popular as people become more aware of the real estate market and show interest in both residential and commercial real estate investments.
Many people seem to be torn between residential and commercial investment options. Some prefer residential options such as houses, flats, condos whereas others like to stick with commercial options such as shops, offices, warehouses, etc.
In this article, we bring you the pros and cons of both options so that you can make a well informed and conscious decision.
If you want to learn more about buying a house versus buying a shop, keep on reading.
Buying a House
No doubt, this is the most common and widely practiced investment option, especially in Pakistan. People buy a house, use it as their residence, and also generate rentals from it. Considering these rewards, a question arises: is buying a house a good investment?
Let’s explore the pros and cons of owning a house to find the answer.
– Pros of Buying a House
Residential property options come with many advantages. Let’s explore some of the major pros of buying a house:
1. Long Term Investment
Residential properties are one of the most lucrative and common investment options in Pakistan because of the high degree of security that comes with them. If you are looking for an investment opportunity that will be beneficial for you in the long run, real estate might be the best option for you. There many construction companies developing real estate projects in which you can invest in.
Also, the price of real estate always appreciates over time. That means the value of your asset will gradually increase over time. Get to know more about real estate investment.
If you own a house, even if your building depreciates over time, the value of your land will always increase, making it a win-win situation for you.
2. Tax Relaxation
The Pakistani government gives tax relaxation and tax reductions to real estate owners. If you own a home you can easily save money on mortgage, home loans, interest rates, and property taxes. Also, the government is more lenient and flexible with residential property owners. Get to know zakat on the property and how to calculate it.
3. Degree of Control
As a homeowner, you will enjoy complete ownership and control over your asset. Unlike other investment opportunities in Pakistan, such as shares, you get the full ownership of your tangible asset. You can renovate it, sell it, rent it out, the choice is yours. People usually prefer a house over an apartment because of this degree of control. If you are confused about whether to buy a house or an apartment read house vs apartment which is the better option?
4. Multiple Benefits
When you own a house you can extract multiple benefits from it. You can use it as your residence, rent it out, use the spare rooms for paying guests, and vice versa. You do not find this kind of flexibility with other modes of business ideas in Pakistan for savings and growth of investments.
– Cons of Buying a House
Unfortunately, residential property options do come with some disadvantages as well.
1. Maintenance Cost
Unlike other investment opportunities such as forex, stocks, or shares, a house comes with high maintenance costs. You need to pay for plumbing issues, air conditioning issues, leakages, cracks in the walls, and other maintenance issues. You may also need to pay for extra security. All these costs add up and result in high costs. If you are thinking to invest in stocks instead read real estate vs stocks, where to invest.
2. Less Mobility
When you own a house, you cannot move to another city or region easily. Hence, before buying a house do consider your job nature and your long term goals. If you are someone who travels a lot or frequently changes his residence, you might want to opt for other investment options.
Buying a Shop
Another great option to secure your money is through investment in commercial properties such as shops. A well-kept shop in a commercial hub can work as a great source of passive income for you.
If you want to expand your portfolio or if you are someone who is not interested in investing in residential property, buying a shop might be the perfect option for you as there are many benefits of investing in shopping centers.
However, before investing in a shop, have a look at these pros and cons.
– Pros of Buying a Shop
Like residential properties, commercial properties are also loaded with multiple advantages and rewards. Some of the most common pros are discussed in this article.
1. Longer Lease
You can easily get a lease at your shop. In Pakistan, you can easily get a long term lease of 3 to 5 years and sometimes even more. This is highly uncommon in residential properties including houses. Usually, you do not get longer leases on houses.
2. Less Costly
When you own a house, you are solely responsible for all costs of the fixtures and maintenance of the house. This is not the case with commercial properties. The tenant of the shop is responsible for making interior changes and vice versa because a huge chunk of his profits come from the outlook of the shop.
Also, if the shop is located in a mall or a shopping center, you will not have to spend on excess security, power generation, parking space, etc. The mall will take care of it for you.
3. Portfolio Diversification
If you already own residential properties and now you want to step into another category of real estate, buying a shop might be the perfect option for you. It is easy to maintain, easy to purchase, and yields good returns and rentals. Making investments is one of the most common practices used by people around the globe to grow their money. To make the right real estate investment there are a couple of really important factors to consider while investing in real estate or you might end up wasting your money down the drain.
– Cons of Buying a Shop
Commercial properties do have their drawbacks. Let’s have a look at them.
1. High Vacancy
Shops come with high vacancies. That means, sometimes commercial properties may sit vacant for months due to many conditions and unforeseeable reasons such as legal issues, economical issues, security threats, pandemics, and vice versa.
Residential properties come with inflation hedge which means that the external economic conditions will have minimum or no effect on the residential properties. In easy words, no matter how much inflation increases, people will still need a house to live in.
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2. Less Capital Growth
Commercial properties such as shops typically experience slower rates of capital growth than residential properties. The capital growth of commercial properties depends on several factors.
Any price falls associated with residential properties are generally less dramatic and usually, happen progressively over a longer period of time.
So, these were advantages and disadvantages of shops and houses. You can clearly observe that each category comes with its own set of rewards and drawbacks.
People are always confused about whether to save or invest and but the question still remains: where should you invest?
Honestly, the answer totally depends on your needs, capital, future goals, and personal preferences.
Give these pointers a read and let us know if you have any questions. We will be more than glad to help you out.
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