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The real estate sector in Pakistan is one of the very few sectors in Pakistan that offers multiple investment options. These lucrative options not only give you hold of the tangible asset but also allows you to get rentals and high return of your investment.
The real estate sector is gradually becoming popular in the country. People are getting aware of the lucrative outcomes of investment in this sector. Therefore, people are taking an interest in commercial as well as residential real estate.
We’ve come across many people who seem to be confused between the commercial and residential investment options. Some of them prefer residential options such as apartments, houses, condos however others like to opt for commercial options such as shops, offices, warehouses, etc.
Today, we are going to discuss the pros and cons of both options so that our readers will have a clear picture before making any investment of their hard-earned money.
HOUSE VS SHOP PROS & CONS
Purchasing a House
The purchasing of the house is the most commonly practiced investment option in Pakistan. People buy houses for their residence, to generate rental income or to resale it. Considering these outcomes, we can question that is buying a house is a good investment?
Let’s explore the merits and demerits of owning a house to find the answer.
– Merits of Purchasing a House
Investment in residential property comes with many advantages, some of the major benefits of owning a house are as follows:
- Tax Relaxation
- Degree of Control
- Long Term Investment
- Multiple Benefits
1. Tax Relaxation
There are no. of tax reductions and tax relaxations to real estate owners. If you’re a house owner, you can easily save money on the mortgage. home loans, and property taxes. Moreover, the government is quite lenient and flexible with residential property owners.
2. Long Term Investment
If we observe in terms of long term investment, residential property is one of the most common and beneficial investment options in Pakistan. It offers a high degree of security. So if you’re looking to make long term investment, this might be the best option for you.
The prices in real estate appreciate over the passage of time. This ensures that the value of your asset will gradually increase over time.
3. Degree of Control
As the owner of the house, you will enjoy the complete hold of your asset. Unlike other investment options such as stock shares, you can feel the ownership of your tangible asset by renovating it, furnishing it, or by renting it out.
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4. Multiple Benefits
There are no. of other benefits as well if you own a house. You can generate extra income through renting it out, use the spare rooms for paying guests, and vice versa. These are the kind of benefits you won’t be able to find other models of business investments in Pakistan.
– Demerits of Purchasing a House
Along with many merits, the residential property has few demerits as well.
- Maintenance Cost
- Less Mobility
1. Maintenance Cost
Owning a house means the expense of maintenance costs. You’ve to pay for plumbing issues, air conditioning, leakages, cracks, etc unlike other investment options such as forex, stocks, or shares. You may also have to pay for security in some cases. Adding up all these costs can make a huge sum in the end, which you’ve to pay ultimately.
2. Less Mobility
Owning a house means restricted mobility as we cannot move to another city or region easily. Therefore, you need to consider the nature of your job and your long terms goals prior to purchasing a house. If the nature of your job requires frequent traveling or you need to change your residence after short spans of time due to any other reason, you should opt for any other option.
Purchasing a Shop
Other than investment in residential property, you can also secure your money by investing it in commercial properties such as shops. An established shop in a commercial hub can give you a good source of income.
If you’re looking to expand your business or someone who is not interested in investing in residential property, owning a shop might be a good option for you as there are a number of advantages of investing in shopping centers.
However, before investing in a shop, have a look at the merits and demerits of purchasing a shop.
– Merits 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.
- Less Costly
- Longer Lease
- Portfolio Diversification
1. Less Costly
As an owner of the house, you’re solely responsible for all the maintenance costs. But that’s not the case in commercial properties. The tenant of the shop will take care of the exterior and interior changes because the better the shops appear inside out the more customer it will attract.
Additionally, if your shop is located in any shopping mall, you can save the expense of excess security, parking, and power generation. The mall management will take care of such issues.
2. Longer Lease
As a shop owner, as can easily get a long term lease of 3 to 5 years or sometimes even more in Pakistan. This is the kind of advantage that you can rarely enjoy in residential properties.
3. Portfolio Diversification
After owning a residential property if you are willing to step into another category of real estate, purchasing a shop would be a smart move for you. There are many accessibilities of owning a shop such as easy to purchase, easy to maintain, good returns, and rentals. 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. Investments in shops to generate rental income is one of the most common practice people follow around the world.
– Demerits of Buying a Shop
Commercial properties do have their drawbacks. Let’s have a look at them.
- Uncertainty
- Less Capital Growth
1. Uncertainty
Shops and other commercial properties come with high vacancies. It means commercial activities depend on various external factors and unforeseeable circumstances such as legal issues, economical issues, security threats, pandemics, and vice versa. Therefore, the commercial properties may sit vacant for months.
This is not the case for residential properties. They come with an inflation hedge which means that the external economic conditions will almost have no effect on them. In simple words, no matter how much inflation increases, people will still need a house to live in.
2. Slow Capital Growth
Commercial properties usually experience a comparatively slower improvement in capital growth as compared to residential properties.
Residential properties usually don’t experience drastic price falls, any change in their market usually takes place gradually over the passage of time.
So, these are some of the merits and demerits of investing in residential and commercial property. As you read, both investments come with their own set of advantages and disadvantages.
If you are still confused about where should you invest?
Honestly, nobody can precisely answer this other than you. The answer completely depends on your capital, needs, future goals, and personal preferences.