Real estate stands as one of the most lucrative and secure investment opportunities in Pakistan, but the question arises: where should one invest, in Commercial or Residential Property?
Residential areas and commercial areas are the two most prevalent real estate options. When discussing these property types, we often encounter two distinct groups of people. Some individuals prefer residential properties, while others lean towards commercial properties. In essence, the ongoing debate of “Commercial Real Estate versus Residential Real Estate” constantly remains in the spotlight.
First let’s look at their basic definitions:
Residential Property is a type of property, containing either a single-family or multifamily structure that is available for occupation for non-business purposes.
Commercial Property refers to real estate property that is used for business activities. Commercial property usually refers to buildings that house businesses, but it can also refer to land that is intended to generate a profit, as well as larger residential rental properties.
You may come across several ads for commercial units and residential units for sale, but choosing which one to invest in can be a crucial decision. Let’s first understand which property is worth investing - commercial or residential.
Deciding which type of investment would be a more advantageous addition to your portfolio requires considering various factors. Below we explore these factors to assist you in comparing both investment types and making a more informed decision.
Cost
Several factors influence cost of the property, such as location, neighborhood, and nearby amenities. Residential property costs vary across cities and projects, offering different sizes. Compared to commercial property, residential properties are smaller in size and the capital needed to acquire them is low.
Commercial properties, however, are affected by different variables. Road-front shop locations and easily accessible office buildings are high in demand, therefore trade at higher prices. If you want to get a commercial property at a good location, you need a lot more money. Moreover, investing in commercial property comes with restrictions on plot and shop sizes, offering a narrower range.
Laws
Residential property owners enjoy more design freedom, lenient construction by-laws, as: Residential areas are often designated for housing purposes, which means they may have less stringent zoning regulations compared to commercial zones. These regulations may restrict the types of businesses that can operate in residential areas.
Building a residential home requires fewer zoning and planning permissions. Conversely, commercial properties involve stricter regulations and hurdles in obtaining permissions for preferred construction and design choices. Operating a business in a commercial property often requires various permits and licenses, which can be more extensive and complex than those required for residential properties.
Stability
When comparing commercial and residential investments, one should consider their resilience during an economic crisis. Housing demand remains relatively stable as people need shelter, regardless of their financial situation. However, in an economic downturn, businesses may reassess expenses, premises, and overheads, potentially impacting commercial investments. Residential investments tend to maintain stability, while commercial ventures fluctuate with the country’s financial health, therefore carrying higher stakes.
Returns
Commercial investments typically offer higher returns through rental income and resale compared to residential properties. Although commercial investments carry greater risks, they also yield greater rewards. Commercial real estate has the advantage of easier value appreciation over time. Selling a successful commercial property is generally easier than selling a residential property.
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