Where to invest in real estate in Lahore

Where to invest in real estate in Lahore

In the wake of the recent policies of the Government and real estate situation we need to understand that the real estate dynamic have changed since 2016. All those who have adapted are now reaping the fruits and those who have not are still wondering what to do. A lot are wondering where to invest A lot of people are also coming with there own chaos theories how real estate in Pakistan will be destroyed and how big profits will come to an end.

I tend to disagree with each one of them, although I do agree that what they consider real estate actually may come to an end as we progress into a more regulated market. It is not any more a free for all market where you can invest any where and expect your money to be quadrupled in a few years.

If you know where to invest in real estate, you will always make money, no matter what the noise tells you. As long as humans exist there will always be property.

In short, real estate investment dynamics in Pakistan have changed and those who will follow will flourish and always remember this Warren Buffet quote. 

Flashback

In the past 3 years, REAL real estate has grown manifolds and I have been guiding you all along and besides one odd area, 99% of our recommended investments have delivered. Lets take an example of DHA Lahore Phase 6 where we suggested following in MB of phase 6

“MB of Phase 6 is developing into a better market than CCA 1 of Phase 6 , you can now find many brands such as Molty foam, Al fatah, Gloria Jeans, Coffee planet etc opening up and the trend will continue in days to come thus making the main road facing MB commercials a worthy rental generating investment”

You can also read the entire DHA Lahore report for Dec 2017.

Actually I did thought that the price may not go above 10 to 11 crores, however they went all the way up to 13 crores in just one year. You can blame me for under calculation but I tend to be very careful not to quote exaggerated figures. It is always better to be careful and quote low and reach a higher result than to make higher expectations and fail to achieve them. However in march I did estimated that in time it may reach 15 crores.

“Prices on main MB have been on a high as number of plots available for sale slowly diminish. I believe that commercial plots on MB facing main road are entering a period where people are expecting prices of 9.5 to 10 crores for a 4 Marla plot and in future it may go to 14 to 15 crores with time”

You can read complete report for the month of march 2018.

I do agree though that when it reached 12 crores, I did worry that it may be a bubble. Anyways the main point is that whoever did invest in MB in 2018 could have easily made 3 to 4 crores in an year.

Where to invest?

You need to understand that real estate is a fixed secured asset and will always be around. What is the worst place you can think of to invest today? I happen to meet some one from Palestine during my trip to Dubai and I was shocked after hearing the property prices in Gaza, do you know that houses in Ritzy section of Ghaza sell for 1 Million USD, yeah that is right and you need to read this 2012 BBC report .

It is always a good time to invest in real estate as long as you know, when, where and how.

In terms of Pakistani real estate market you need to take into account the following factors and you will never fail.

1. Major market factors

These factors are common and are always relevant in any market, however in the present market scenario they obviously get a lot more importance than before.

1. Developing projects
2. Value addition
3. Rental prospects
4. End user demand

In short you need to invest in areas where new projects are being developed in areas where rental prospects exist due to end user demand and value addition is being done on existing land or property by developing or constructing commercials offices or apartments. 

Besides this we should also understand that real estate is always local so whats plausible in Karachi may not be applicable in Lahore. Plots in DHA Peshawar gained 90% in one year while DHA Lahore 9 prism market stayed completely silent. Also keep in mind what may be right for some one else may not be right for you. If you are some one with lots of money, it may be wise to buy a commercial plot at some good location, build commercial on it and rent it out for few years and than sell it out.

However if you are some one who can invest 1 crore or 2 crores what options do you have in Lahore? 

2. Effect of Government policies

Another important factor which is going to determine the direction of future real estate investments in Lahore are the Government policies such as CGT on built up residential property which is limited to 4 years only in comparison to 8 years for  plots it is 8 years. This means that if you invest in constructed residential properties you will be free from any CGT in 4 years.

The Government wants activity rather than millions of rupees laying waste in plots, even our PM Imran Khan was seen quoting on TV saying that we need to shift our focus on high rise and housing projects rather than developing plots. This means that there will be a constant shift in Government policies that will favor constructed properties and projects.

3. PKR Depreciation

USD and PKR exchange rate has always been a concerning factor for those who invest from abroad. Buying in installments rather than paying lump sum can partially hedge PKR depreciation.

A case study

In Jan 2018 I suggested investments in Goldcrest Mall and Residency due to many reasons including Govt policies.  I also perceived that residential plots will not gain a lot in Lahore for a few years. Thus everything boils down to the one place where a whole lot of investment is going to get dumped “Malls, apartments and office Projects in Lahore”.

The profits on these projects are awesome due to less exposure as you have to pay in installments, unlike when buying plots where you have to pay in lump sum. In addition you get benefit of the price increase on entire apartment although you may have only paid 50% of its price so far. Let us find out how that helped us in Goldcrest when we invested back in 2018.

A real scenario

An expat Mr, ABC invested in a 2 bed apartment in May 2018 at 30% advance in Goldcrest t0 purchase a 1345 sqft apartment.  Till to date he has paid almost 4 quarterly installments. At that time I do admit I had no idea that PKR will depreciate by 40% , yes I was expecting a 15 to 20% decline but we still managed to sail through with success.

Total price of apartment at the time of purchase  20,175,000 PKR

Paid upfront                           6,052,500  PKR  (1 USD = 130 PKR)*

To be paid in installment     9,078,750  PKR ( 6 quarterly installments)

Paid so far in 4 installments 6,052,500 PKR ( 2 installments at 1 USD = 135 and 2 at 1 USD = 150 PKR)*

Balance installments           3,026,250  PKR ( 1 USD = 162 PKR)

To be paid on possession    5,043,750 PKR ( 1 USD = 162 PKR)

* we have just calculated an average USD vs PKR price as we do not have exact data of exchange rates on the dates these installments were given.

Although the initial price in USD was near 1,551,92 , however due to USD appreciation the actual price he has to pay now comes down to:

46,557+ 22,416 + 20,175 + 18,680 + 31,134 =  $ 1,389,62

Now lets calculate some profits 

Present price per sqft = 20000 per sqft

Total price      = 2,690,000,0 or $ 1,660,49

Total paid so far in USD = 89,148 = 1,444,197,6 PKR ( 1 USD =162)

If sold today PKR he will get back are 6,052,500 (Upfront payment) + 6,052,500( 4 installments) + 6,725,000 (Price difference)= 1,883,000,0 or $ 1,162,34

Total profit in USD = 1,162,34 – 89,148 = 27,086 Profit

30% profit in almost a bit more than an year with PKR depreciation accounted for. 

That is awesome isn’t it specially when you know that when this project is complete the price will be near 25000 per sqft.

Still wondering where to invest ?

The answer is construction projects in installments, they add value, they are usually made in developed areas where rental and end user prospects exist, the Government wants to promote them and above all if you are afraid of PKR depreciation they can help you hedge.

Ofcourse your next question is going to be which one?

The best candidates so far in my opinion are Goldcrest Mall and Residency in DHA Lahore, Downtown Residences in Gulberg 3 and Zee Avenue on Cooper road.

However which one suits you is totally another story and you may need to call me so that we can discuss and find that out.

Captain (Retd) Shahnawaz Yaqub Bhatti

Investment Consultant and CEO at Imlaak

Mob : +92 333 1717170 ( Whatsapp)

Skype : Shahnawaz.yaqub