To act of investing can be simply defined as the allocation of resources with the expectation of reaping benefits at a future time. Something which is common with all investors is that all of them expect to gain maximum out of their investment. In a developing country like Pakistan, getting the most out of direct investment can be considered a huge achievement. The potential attractiveness of investing in Pakistan has traditionally remained lower than neighbouring India, but equal to Sri Lanka and Bangladesh. Against the backdrop of challenging security environment, electricity shortages, and a burdensome investment climate the potential attractiveness of investing in Pakistan improves very slowly. This also shows in World Bank’s global ease of doing business report 2019, in which Pakistan was ranked 136 out of a total of 190 countries in World. Simply put, if you do have some extra bucks and you wish to invest them you do have a tough time in deciding where to invest them for a safe and good return.
One of the fastest growing sectors of Pakistan over the years, is the Real Estate sector. Pakistan spends about $5.2 billion on real estate related construction in a given year. Investing in real estate involves the purchase, ownership, management, rental and sale of real estate for the sake of profit. According to FPCCI (The Federation of Pakistan Chambers of Commerce and Industry), real estate agents are playing an important role in the economic development of the country since they facilitate the investors and make them realize their potential gains.
The traditional investment options in Pakistan have been investing in stocks, bonds or mutual funds, agriculture, gold, currency exchange etc. has been typically unattractive for some time now since they end up delivering about 7% to 9% net return, which is better than nothing when compared to the same investment made in real estate in Pakistan. On the other hand, there are passive investment options that do allow you to have more control, greater return and, a sustained return. One of the best options for passive income in Pakistan is investing in real estate.
Investment in agriculture Sector; Issues and challenges:
Pakistan is an agriculture-based economy, where majority of the population directly or indirectly depends on this sector. The agriculture sector contributes around 24% to gross domestic product (GDP) and accounts for half of the employed labour force. It has been a big source of foreign exchange earnings, but sadly the sector has been neglected over the years. Therefore, in agriculture it is vital to identify and evaluate risks to be sure that decisions made on the farm will bring positive results. So, investment in this sector is very risky and no one is sure about its advantages.
Pakistan is an agriculture-based economy, where majority of the population directly or indirectly depends on this sector. The agriculture sector contributes around 24% to gross domestic product (GDP) and accounts for half of the employed labour force.
Investment in Textile Industry; Challenges Faced by Textile Industry of Pakistan:
Another option is to invest in Textile Industry. Textile industry is the largest manufacturing industry in Pakistan. Pakistan is the 8th largest exporter of textile commodities in Asia. Textile sector contributes 8.5% to the GDP of Pakistan. In addition, the sector employs about 45% of the total labour force in the country (and 38% of the manufacturing workers).
Due to increase in rates of electricity and raw materials, along with elimination of tax regimes over the world and free trade agreements, investing in textile has not remained as attractive over the years. Due to these difficulties over 125 textile units have closed down in the last couple of years with majority caving in to the pressure in 2018.
Gold; cons of investment in gold
In Pakistan lot of people also invest in gold as gold prices are usually on a constant upward trend. Hence, the risk of losing out on your investment is very low. However, investing in gold brings back just meagre returns at best. Currently, the state of international economy is suggestive of the fact that investment in gold might not remain as attractive. No doubt; gold price has been climbing since two decades but the international scenarios shaping up are suggestive of the fact that this bubble will burst soon as well.
Investing in Saving accounts and ISSUES
People also chose investing in saving accounts or National Savings Bond through which they earn return at a fixed interest rate. Devaluation of Pakistani currency and inflation is usually greater than the return which is offered by banks. Similar to gold, return on this investment is usually small that is why more people avoid to invest in saving accounts.
Investment in foreign currency and forecasted ISSUES
Another investor favorite has been foreign currency (commonly US Dollar) to realize gain on investment because of the fluctuating exchange rate (usually a negative trend for Pakistani rupee). With the current exchange rate trend this might seem like a suitable option at this time. However, this is not a long term investment as this option will seize to be attractive as soon as the economy starts to stabilize a little. Also, since the exchange rate is fluctuating a lot and it’s prediction is difficult so you also might end up losing your investment. This is something which changes daily, if not hourly, so the effort is never proportional to effort and the money that has been put in.
Investment in Real Estate; why it’s a good time to invest in Pakistan’s real estate?
Another sector to invest your money is real estate. Millions agree that real estate is among one of the best type of investments as the pros clearly outnumber than cons. Although the real estate market has been slow for some time now and there have been quite a few scams in the market to shun away investor interest. The trick of the trade is to choose the investment destination carefully and after scrutiny. If due care is taken then investing in real estate is something that brings un-paralleled returns. The returns are far better in terms of numbers and the time span in which they are realized. Other benefits of investing in real estate include potentially stability, inflation hedging, diversification, and convenience, surety of ever increasing demand and security of investment. It goes without saying that there are many benefits of investing in real estate that outweigh the costs, and you as a real estate investor could be earning a steady flow of income to secure financial freedom in the longer run.
Although the smaller cities have now opened up as well but the traditional high return real estate markets in Pakistan have been Karachi, Islamabad, Lahore, Peshawar and Faisalabad. Clearly so because these are the cities which have been experiencing unprecedented infrastructure development in the last decade or so. Islamabad expressway in Islamabad, Ring Road in Lahore and Peshawar, Bypass in Faisalabad etc. These infrastructure developments have made sure that any and every residential or commercial project in close vicinity of these developments has had an unprecedented realization of growth in investment. Let us take Lahore as an example and the effect that Ring Road has had on prices of different housing projects around it;
|Serial Number||Housing Project||Price in 2015 – 10 Marla Plot (Lakhs)||Current Price – 10 Marla Plot (Lakhs)||Increase (%)||Expected increase in the next two years (%)|
|1||DHA Phase 5||72||125||74||150|
|2||Sui Gas Housing Society||26||38||46||45.6|
|3||State Life Housing Society||33||48||45||57.6|
|8||Fazaia Housing Scheme||18||30||67||36|
|10||ZAITOOON New Lahore City||21||40||91||170|
Similar trends have been observed in all cities undergoing a rigorous infrastructure development. Just by one time investment, long term benefits will be cherished for the investors. There are wide range of options available when investing in real estate, depending upon the down payment that you can make you get to choose from residential or commercial property or on-plan or off-plan property. Most people also generate income by gaining rental income from the properties that they own. Owning a rental property can bring about a sense of security because of the steady income that it brings and the appreciation in value of the property.