In most countries, real estate is widely considered a low-risk investment option with lucrative returns – and, by extension, an accurate measure of an individual’s wealth. For investors with deep pockets, the global property market is both affordable and attractive. These affluent individuals are primarily motivated by the desire for profit; a monetary stimulus that pushes them to purchase expensive commodities in fancy cities across the globe.
This last statement shouldn’t come off as an exaggeration to anyone; rather, it is a truism of the age.
Consider the case of the 2016 Panama Leaks revelations.
The series of investigations conducted into this affair made headlines when they disclosed global financial offshore scams. It was a shocking eye-opener: the 11.5 million documents provided insights into how businessmen and politicians from more than 50 countries ‘laundered’ their accumulations abroad by contracting the services of 21 tax havens. And a number of these individuals invested their ill-gotten gains in the global real estate sector.
The practice of spending one’s wealth in the pursuit of suitable property options is even more prevalent in developing countries, where government determined real estate prices are considerably lower than their actual market rates – a costing gap which provides enormous leverage for facilitating short-term investment prospects. To regularize its multi-billion-dollar national property market (an enormous task which requires making revisions to the incumbent property rates to bring them at par with the market rates), the Pakistani government recently introduced a new and improved taxation regime.
But what are the essentials that make up real estate the most sought-after long term investment option in developing countries?
Real estate is one of the safest investment options
Businesses suffer losses, stock exchange crashes, and value of other commodities including gold fluctuates in response to changing political and economic situations, but such internal and external factors rarely impact the dynamics of the real estate sector.
It has also been observed that a less lucrative real estate market also poses less risks to the investors in the long run. In such situations, property owners don’t mind holding on to their investment for a longer period in the hopes of finding a better bargain – which serves as the chief motivator for making profits.
The value of a property records a gradual yet continual rise
Investing in real estate comes with a unique perk: the capital parked in properties shows a gradual and continual increase over time. Poor market conditions are almost always followed by an upsurge in demand and that’s when the losses are recovered. The holding power of influential property owners allows them to sit through the tough days and wait for favorable market conditions to replace the existing ones.
Moreover, as previously mentioned, the value of a real estate asset experiences a gradual rise over time. This phenomenon, which is exclusive to the property market, serves as an incentive for the people to devise long-term investment plans.
Property investment guarantees high returns
Sophisticated investors show no signs of hurry. Favorable market condition do not compel them to sell their possessions for tempting short-term gains. In addition, the real estate cycle – where property rates drop once in a while only to ascend to new highs – promises much greater gains in the future.
If a buyer can hold on to his investment for a few boom cycles, his ultimate gains on property investment increase manifold than the initial estimations. Not to mention that some investment cycles offer gains so irresistibly attractive that owner may need not to prolong his investments. In such circumstances, the investment duration can vary, but it won’t be for a short term.
Property transfer and registration has become more convenient
Nowadays, property sale and purchase procedures have become less complicated because of the availability of online property portals (such as Prop; recent entrant to Pakistan’s property sphere) which allow the users to sift through multiple listings, as well as advertise their products, in a matter of minutes.
Similarly, the land record authorities in most countries have digitized their operations in order to allow convenient access to the citizens regarding their ownership records. Moreover, all the pre-requisites with regard to property inheritance and transfer have been simplified to facilitate the public.
In addition to enjoying the perks listed above, long-term property investors in most countries also benefit from certain tax exemptions. For instance, in Pakistan, if an owner sells his property after eight years of its purchase, he is no longer liable to pay capital gains tax (CGT) to the authorities concerned.
If an investor plans to make long-term investments, the chances are also high that the area he/she chooses to invest in becomes more accessible and commercially attractive due to infrastructural developments carried over time. In a wider context, long-term real estate investors are in for the win.