Where to invest in real estate for faster returns
While Covid-19 has come as a curse for the global economy, it turned out to be a blessing for real estate in Pakistan. Real estate and construction sectors are identified as the main focus of the Government to revive the economy. It is now important to understand where to invest in real estate for faster and better returns. This should be taken into context with the construction relief package offered by the Govt allows investment of undeclared money in real estate or construction sector as per following conditions:
- Any individual planning to invest under this scheme must register himself at the FBR IRIS web portal.
- In case of undeclared money used to buy a plot in possession area. The construction work must start before 31st Dec 2020 and should be 100% complete before Sep 2022.
- For investments in high rise on installments, the grey structure of the building must be complete by Sep 2022. Additionally you must invest before 31st Dec 2020 in case of undeclared money.
- In case of investment in plots on installments, the investment must be done before teh end of Dec 2020. In addition the road infrastructure and 50% work should be complete before Sep 2022.
- All transactions must be done through banking channels, using Pay orders or Cheques.
- In addition you can also start your own project or acquire an existing project on partnership etc.
Just being able to invest undeclared money is not enough, you must also know and understand where to invest to make profit out of it.
Should you take advantage of this scheme?
Yes, you must invest in real estate because not only will you not be paying any taxes, you will actually make profit through your investments. It can not get any better than this. Property prices in Pakistan have been trending down for the last 4 years and are already ripe for investment purpose. This is the right time to invest in real estate as we were already expecting an overall increase in prices of real estate between 2020 and 2025.
Covid-19 followed by the construction relief package by the Govt is going to act as the catalyst and marks the end of the real estate downward cycle in Pakistan.
In addition to these measures, Govt has lowered transfer costs of real estate and kept DC values minimal. KIBOR is also down to 8% and is expected to go down to 6% soon which is further going to add fuel to the fire.
Even if you do not have any undeclared money, you should take advantage of this upward trend. Driven by the amnesty and enjoy some nice profits on your investments.
Where should you invest in real estate?
It all depends on your personal preferences and situation, real estate in general is going to perform good in next 5 years. However some areas may out perform others through earlier returns and better ROI. This is a general guideline to help you make the best possible choice in the present scenario.
This is the safest option in todays market and is also going to be the center of investment. Areas such as DHA Lahore Phase 6, 7 , 8 and 9 Town are going to gain the most. As you can only undeclared money here if you start construction, it will perform best in short term 6 months to 1 year and long term 3 to 5 years. The mid term perspective may not be that bright but chances of speculative trading are still high.
You can only use undeclared money to buy plots only until 31st Dec 2020 but technically, if you start construction over it, then you can invest more till Sep 2022. An increase in construction projects is always positive for possession areas. Therefore even though we may see sluggishness in the upward graph after Dec 2020, it will keep gaining slowly.
Opportunity investors are going to jump in as well and as long as these areas do not get cramped with houses for sale by 2022, the prices will keep on flourishing.
High end apartment projects in Gulberg are great for investment in the present scenario. Investment in projects give you the flexibility to invest in installments over the next 3 to 4 years. This technically extends your limit to invest undeclared money for that many years.
The apartment projects offer great opportunities for short term trading specially during pre launch. Lot of ‘big guns’ jump in buying complete floors at a lower price and than sell it on a higher price later. The mid and long term prospect is brighter than plots as they offer great rental returns and a better long term ROI.
Apartments offer a stable monthly rental income but offer lesser liquidity than plots. However they cope up with this downside by being much more prone to highs and lows of the market in comparision.
Non Possession Plots
They are not part of the construction relief package, except those on installments. So in general it is best to only invest in areas offering plots on installments. Plots on installments do not offer rental income, you will have to rely completely on capital gains. In my opinion it usually takes 3 to 6 years after possession, when they give good solid returns. However, speculative trading may give you some good gains in short and mid term as well.
So a timeframe of 4 to 8 years should be kept in mind while investing in Non Possession plots on installments for considerable gains. When it comes to Non Possession areas of DHA Lahore, it is best to invest with atleast 3 to 5 years time frame in mind.
What should you pick?
In general real estate is going to perform well over all. However to gain maximum returns the best bet is to invest in areas which are covered by the relief package.
Tax filers with white money
- You can invest anywhere without worrying, you do not need to construct houses or plazas, you can simply buy a plot and enjoy the appreciation over the next few years.
- If you are looking for short term trading, it is best to go for possession plots and high end apartment projects.
- In case you are looking at 2 to 3 years trading period. I will again recommend possession plots in Phase 6,7, 8, 9 town of DHA Lahore and high end apartment projects in Gulberg.
- If you are looking for 3 to 5 years than investing in non possession areas such as 9 Prism etc is also a good idea.
- For long term investments beyond 5 years, high end apartments are most suiteable.
Investors with undeclared money
- If you want to build a house or commercial for yourself, go ahead. This is best time to do it. Find a possession plot and start construction before 31st Dec 2020.
- For investment purpose I believe commercial plaza is more suited, than building a house and hoping to sell it on profit or renting it out. In addition, a commercial plaza will give you a stable rental income as well if you keep it for long term.
- Instead of possession plots for purely the purpose of investment to build houses, construction projects and plots on installments are more suitable. This gives you the chance to invest over the next 3 to 4 years and if you are a businessman this means you even have amnesty over the money you may invest in future. However you must make the purchase before Dec 2020.
- It is best to go for under construction projects which are partially complete rather than new ones.
- Non possession plots, files are a no go.
Captain (Retd) Shahnawaz Yaqub Bhatti
Investment Consultant and CEO at Imlaak
Mob : +92 333 1616160 ( WhatsApp)
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