Real Estate Investment on Installments vs Cash in Pakistan

Real Estate Investments on Paying Against Money in Pakistan

Real estate investments transferred and real estate for sale with cash are the two options available to you when you plan to invest in real estate in Pakistan.

We can further classify these two options as below:

1. Possession plots about money.
2. Possession plots of money.
3. Ownership Plots in payments.
4. Real estate built with money.
5. Buildable buildings (houses, apartments, shops) in installments.

Generally buying real estate is a facility for those who cannot afford the prices upfront. However, if you plan to invest, you can use it as well as leverage and invest small amounts to get huge income. So even if you have the money available with you, it may be better to invest smartly and pay in installments.

Fees against Monetary Investments

Before we proceed with the case study, we must first understand the general advantages and disadvantages of cash versus real estate.

Advantages of cash against real estate investments in arrears

1. The first is obvious, you can buy a property even if you don’t have the full payment, thus making it easier for you to save and pay as you go.
2. You get taxed because real estate prices go up over the entire property and not just for what you paid.
3. It usually offers more flexibility, as you can buy more properties with the same money and then liquidate them in part at a profit.
4. Buildable buildings (Houses, Dwellings) in parts are usually available at a price less than or equal to similar owned real estate.
5. You can take advantage of Dollar appreciation if it occurs during that time period.

Disadvantage of cash against real estate arrears

1. Plots in installments may be a little more expensive than in cash. Usually, plot payments cost 10 to 20% more than buying a similar property in cash.
2. Buying cash-owned property is safer than investing in property in installments, which is yet to be developed.

The comparison

If you do not have the money, obviously it is your choice, all you have to do is buy a property after the payment. However, if money doesn’t limit you, it’s time to evaluate all the options to find what works best for you.

Possession plots on Cash

When you have money, you can certainly find many opportunities waiting for you in the market. You can also take full advantage of speculative trading and enjoy the market spikes as recently seen in 2020-21 in DHA Lahore.

However, you will not always succeed and some losses are always on the horizon. Buying a plot in a mature area that has already reached its full potential is like putting your money into a gutter.

Landless plots for money

Buying an indispensable property is not very economical as such. The thing is usually that most developers will only offer a 10% discount on cash payments. This is much less in my opinion and it is much better to pay delivery in a period of 3 years than to buy it in cash. Obviously, if the delivery period is less or about a year then it makes sense but not otherwise.

Plots on Episodes

There are various ways you can take advantage of buying plots for free. You can improve your position and invest a lot. As well as speculative trading, you need to form a plan to include:

1. Expected appreciation of the plots in the near future.
2. How long can you keep the real estate without draining all your money?
3. Terrible sales planning for profit/reward.
4. Failure plan if your plan does not work.

Everything seems good, yet a problem with such investment is that in underdeveloped societies takes a decade or more to fully develop. However, if you are a smart investor, you may be taking advantage of investment / speculative bubbles within this period.

Real estate built with money

This is always a good option to get a mature property to generate solid cash flows. Rental income in my opinion is the mother of all real estate in Pakistan and in the world. However, many people cannot do it due to financial constraints, as built profits are usually more expensive. That is why speculative investments in plots continue to remain the most popular real estate investment in Pakistan.

However popular does not mean success either. The success rate of people who have invested in rental income generating real estate exceeds that of those who have invested in plots.

Buildable real estate at installments

In addition to just buying plots, you can also invest in construction projects for payments. These include houses, shops, apartments, etc. Such investments have some additional advantages such as:

1. Residences, houses or shopping malls are usually made in places already mature. So technically you are investing in an already mature asset.
2. The maturity of a construction project is usually less than that of complete social development. It takes between 3 and 6 years for a construction project to fully develop and mature, which is much better than a society that will last more than a decade.
3. The price of real estate is gradually increasing according to a fixed pattern as the construction progresses. It’s easier to plan and profit from an outing.
4. The product of your investment is an asset that can be rented out and used to increase your passive income.

The only major drawback I see in this type of investment is that sales are usually slow compared to plots. This is due to the fact that these are usually end-users after a natural gain and do not serve the purpose of part-time investors looking for speculative bubbles. However, this aspect is also improving as the construction trend continues to grow across Pakistan and investors are getting more and more engaged.

Winner won a chicken dinner

The winner in my opinion is construction projects on installments followed by rental income producing real estate in cash. The thing is, real estate adds capital gain in access by about 50% during its construction. In addition, the end result will produce a property that generates cash flow as opposed to plots and you will not fail to raise money as so many people did between 2016 and 2020 who invested in plots.

The past has taught us one thing, conspiracy investments in Pakistan have long periods of zero to negative growth. If you get stuck in one, you’ll have to wait half a decade before you can even think about liquidating your asset.