the property with legal possession and right of using personally and commercially.
It contains land , buildings , fences,
areas and structures . The literally
mean of word real estate is real or physical existence of property.
Types of Real Estate
There are four types of real estate:
Ø Residential it consists of both, new construction and reselling homes. The most
common of it is single-family houses.
Ø Commercial it has shopping centers, medical related and educational purpose
buildings, hotels and offices. Apartment buildings are also taken commercial,
even using as residency, due to using for income purpose also.
Ø Industrial consists of production premises and property,
such as warehouses, factory. Also using for
research, production, management, storage and distribution of goods.
Ø Land includes vacant land, working farms. Also include undeveloped,
early development or reuse, Plots at housing, market and factory areas.
How the Real Estate Industry Works
The producing, buying and selling of real
estate is also called real estate working. Construction of new structures is a part
of gross production. It includes both housing, commercial and trade oriented
Real estate workers attracts people for
housing, business and investing buy and sell all four types of properties. So
the real estate industry consist of special agents that deals effectively in
it. They have professionals to deal in property. Mostly they have hold in to
increase the prices and value of property. And in some conditions demand of
property is increased which cause to increase the value and price of property
in specific area. This becomes the golden chance for real estate agents to deal
at their own conditions.
Some of the land has no value before, but
sometimes due to any condition its value increases at once and it becomes value
able causing to increase the demand and in prices also. For example, an area to
where market, industry, educational, medical or other institutes of social
value settle’s gets up rising demand in short time and become expensive. In
some other conditions the value of the high demanded land downs for example due
to lack of social facilities the value of land remains same or go down and become
undeveloped as in villages, but due to some special events oftenly its value
goes up for instance. And some times due to natural disasters such as flood and
earth quake the value downs instantly. Sometimes such type of land is than cheaply uses for industrial purpose.
Commercial areas are very special and
famous for real estate specialist and businessmen. Here the most expensive
deals are made and having the highest demand due to severe need. It has the
strongest market value. Due to these situation, the business of real estate
shows heavy ups and downs, but this situation changes in area vice. By checking
these situation government issues land reforms and new housing societies
That Drive the Real Estate Industry
The large part of money of people of world covers
by Real estate, as home is the basic need of almost all the people, and
purchased for intention of life time. If you are purchaser seller or business
agent or complete owner of a residential building, this industry is strong
profitable way for you to use money. so, industry has four basic stakeholders
without them it cannot work smoothly. these are developers, investors, domestic
consumer and corporate occupiers, to study the real estate structure well.
Investing in real estate is always an
attractive choice. commonly here investment is made directly. Its value and
scope make it attractive and profitable for investors. The direct investing
oftenly consist of purchasing land or building for business or domestic
purpose. But risk of lower pay back is always involve in this business. Inspite
of this, this secrtor has high investment and return history.
As in all other economic areas, the
customer is effective decision maker here, too. the growth of investor and
developer depends on his interest. Everyone takes property to fill their
requirements, to survive in market investors have to offer attractive deal. If
consumer is dissatisfied or feels default then he can charge legal action
The Real Estate laws are applied for
purpose of saving consumers perception and for more reforms into the sector. It
will regulate the overall market.
They facilitates the important needs like
providing infrastructure to contribute the sector, like housing, office space,
project management. They play a key role in the real estate sector by bridging
the gap between the construction facility and the consumer’s need.
They are personally involved and interested
in the field work. They take the land and make a full developed plan with their
vision. And put the value in area, location, infrastructure, design and
controlled construction process. they aims projects for commercial and
residential purposes. Housing societies are the main objectives of most
developers, partly because it serves the basic need of public and it has a huge
investment from consumers and profitable return.
Corporate occupiers have the basic need of connectivity,
accessibility, and well furnished overall infrastructure quality. They are the
category of heavy consumer, their interest is in plazas villas farm houses, big
houses and luxury resident buildings and apartments. The first challenge for
developers is to build properties at competitive prices, in areas that are
attractive to such customers. Most occupiers sign a deal based on these
For example in gulf, foreign players are
among the prominent corporate occupiers. With lifestyles, easy access to
talent, affordable property, a fast transition towards an developed
space and a nice location are what foreign corporate occupiers find the most attractive
innovation in physical and social
infrastructure explores the attractiveness of the existing properties and
allow the formation of new office corridors.
Everybody who involved in buying or selling
of a property enters in real estate investment. mostly people have good
investment skills in homes and they aims the purchase and sale of houses like a
business. They uses different ways. As first take a house sale it at profit and
then get more in different areas at this investment for resale, and repair or
furnish the house and resale it. Having many houses and use for renting and sale for business
This should be done by carefully observing
the current business situations. If market goes down this will be high risky
investment for domestic investor. Another way is with Real Estate Investment
Trusts, called REITS. These are investments in commercial real estate.
Investment factors in
Real estate investments pays back a good high-value risk-return
profile. Therefore investors like to mostly put money in this sector , considering
some impotant factors. Thee are given below.
Location of the Property
Expected Cash Flows & Profit
Location of property
the top factor in property dealing decision. It is also first priority of
developer and real estate authorities. For the housing purpose location gives
value to land, here the social aspects are important as in the city area,
schools, markets and roads etc. While approaching to markets, industrial areas,
commercial areas, warehouses, transport hubs, access able roads, tax-exempt areas,
etc. play an important role for the value of commercial property. Location is
also responsible for the good or bad prices and liquidity of property.
The market value of property is base of mostly
business deals of property. As for housing, In the fully populated city area,
the value and demand of property is mostly grows very high. In good facilitated
areas value is also high.
For commercial and business, in the specific
areas as market, on the road plot, commercial property, industrial,
agricultural land and by shifting markets give a heavy impact on the valuation
Location and value of property are the basic
factors the gives the importance to the price and usage of property, some other
personal purposes are also the factors of investing in.
buying for personal using as residency,
self-utilization enjoying partial rent. buying for income purpose as to give on
long term rent.
buy a house as a short-term venture for
reselling purpose, after repairing or furnishing and sale at more profit. Or buy
for long term sale such as sale for education, marriage, at retirement and
Expected Cash Flows & Profit Opportunities
The use and purpose of property investment
effects cash flows and profit opportunities. The instance expectation of profit
motivates for investment. As due to some social or environmental condition,
increase in value seems to occur, sudden need for rental.
A capital gain is profit or increase in the
value of capital asset. By formula, it can be found by subtracting the purchase
price from sale price, for example
The formula for capital gain is:
Capital gain = sale price – purchase price
Here the value of sale must be more than
purchase price, for the profit or gain. If sale price will less than purchase
this would be refer as loss in capital.
Because when gain in capital confirms, than
tax is imposed on it. the tax will apply only at the condition of sale, Until
that point any gains are considered unrealized and are not taxable. all the assets
that individuals and companies are holding IRS takes them as capital assets and
thus capital gains taxes are imposed. This way encourages long-term investing.
is capital gain tax
A capital gains tax (CGT) is a tax on
capital gains, we can say it is government fee on profit. the profit realized
on the sale of a non-inventory asset that was greater than the amount realized
on the sale. Mostly capital gains are realized from the sale of stocks, bonds,
and property. In many countries capital gain tax in not implemented, and others
has different taxation criteria for individuals and companies.
The impact of capital
gain tax on real estate business
What You Need To Know About Capital Gains And
before investment, information about tax size on
gain is necessary. Oftenly it is ignored, but at the end of investment capital gain can
give big impact. many capital gains are taxed as their type. Below, the different
types of capital gains are given and consideration for investment decesion.
Taxation and Equities
Capital gains on equities is applied by long-term and short-term. If
investor holds th stock after one year it will long term and less than it will
short term. Thus lower tax rates are charged for long term than short term.
This encourages to invest in the companies that smoothes the economy.
Taxation and Bonds
Tax imposed on income from bonds reveals some characteristics with stocks, but
also many differences. If the bond sold at par value and investor keeps it
here capital gain would zero. And if investor sells before maturity and gets
gain from the bond, then there is a capital gain, the same as with a stock.
Taxation and Mutual Funds
and other funds requires some special attention. Conditions of its shares and stocks
and bonds for capital gain are same in terms of short-term and long-term. Tax
is imposed on applied interest as usual. The change is at the fund’s internal
WHAT IS A REIT?
Real Estate Investment Trust is a mutual fund that aims to investment in properties and
real estate and derives profit from such investments for its unit holders.
A REIT Management Company checks a project
and collects investment by an Initial public offering (IPO). It then takes a
property and give it at rent. This income is shared with unit holders (The
shareholders of REIT).
STRUCTURE OF A REIT
REITs in Pakistan organized in trust
structure, it consists of trustees, the REIT Management Company (RMC) and
investors. The trust is established by the REIT management company and the
trustee. The trustees keeps its property and observes the operations of a specific
Scheme. REIT Management Company (RMC) approved by SECP, manages the operation
in according to trust deed and the offering documentation.
REIT is handling by SECP. The REIT
Management Company, REIT scheme and the trustees are subject to monitoring under
REIT is governed by the following
Companies Ordinance, Part VIII,
1984;Non-Banking Finance Companies
Rules, 2003;REIT Regulations, 2008;CircularsIncome Tax Ordinance, 2001
KEY POINTS FOR REITS INVESTORS
REIT investor pays only one
installment of fee for investment/disinvestment in a REIT. charges are explained
in the offering documents of REITs.
RMC charges this for the purpose of
management of REIT. The RMC is appears to be paid on monthly basis out of the
REIT property, which is overdue of the added payment of charges not cross three
percent of the average annual Net Assets of the REIT in first five years. investor
pays according to purchase of units of the fund
Trustee & Custodial fee
The trustee who serves for the
REIT’s assets takes this fee. The Trustee is assigned to a monthly payment out
of the REIT property based on an annual tax charges as per tariff structure shown
in offering document. The periodical statements of accounts, offering document and
constitutive documents are send to investor
RISKS ASSOCIATED WITH INVESTING IN REITS
As like all investments, considering
the risks of REITs is necessary to clear that the product fits with your risk
profile and your overall financial plan. Risk
Profile is the maximum level of investment risk than at individual
and organization is willing to accept. Financial
Planning is full evaluation of an investor’s financial situation. Some
of the other major risks associated with REITs consist of:
Shares of REIT are traded through
stocks exchange and the prices are according to demand and supply. by the sale
of units in REIT investors receive amount lesser than actual. The price shows
the satisfaction investor for many factors such as economy.
as investors takes benefit of sale
of stock on the exchange, then real estate money can be less liquid than funds
put in other financial securities, like stocks and bonds. It is due to gap in
property marketing, especially if the price of the property has down
Here may be facing many legal risks as
the conflict on title of property, continuous legal action and payble amount.
KEY PLAYERS IN A REIT
REIT Management Company (RMC)
A REIT Management Company is an AMC
listed firm, authorized by the commission for working as a Non-banking
financial company to set REIT programe. the manager authorized with SECP is
allowed to invest in real estate.
Its obligations consists of
the legal documentation in formal way.Confirmation
of reporting formalities.Structuring
the REIT under the programme of SECP.
Every person having National Tax
number or taking a Computerized National Identity Card is applicable for REIT
A trustee which is REIT member can
be financial institution authorized under the SECP responsible for taking
investment in securities and real estate.
He keeps all the contributions and
returns on investments and other incomes gained by the RMC, on assurity of the contributor.
A custodian may be any individual or
organization usually works as a keeper authority, who observes RMC’s risky
investments. It also watches over assets and confirms that the REIT programme
is organized according to regulations of RMC. Its participation minimizes the
risk of any step that may be negatively affect the interests of participants.
BENEFITS OF INVESTING IN REITS
many benefits and Chief among them are:
The investor has the benefit of
having share of stock, gettiing benefits in chance of getting profit on his own
capital lonely. And usually there are almost no chances for individual investor
to hold personal investment in huge venture such as commercial buildings.
Investment through it gives extra
benefit of liquidity, the facility to change assets into cash.it is more
accessible than shares to deal for real estate investment
Transparency & Flexibility
The overall structure of purchasing
and selling a REIT is simple and flexible. The applying investor can
normally get access to information related to prices and get involved in
trading in any time.
So it is clearly an uncomplicated
way and liquid opportunity for individual investor to invest in huge real estate
assets such as hotels, offices, malls, plazas, along the profit for unit
holders. its portfolio is professionally managed and capital is generated from
Effect of capital gain
tax on asset prices
Taxation is wide
spread market term in financial markets.
mostly, the decisions and oftenly asset values are dependent and dealed
under tax satisfaction. It severely effects the assets marketing and business
strategy. As it is necessary for investors to react in any way after the implication
of tax. And sometime due to tax, it becomes difficult to estimate the asset
valuation. Many analysis reports that due to capital gains stock price and
current stock return significantly decreases.
There are two
effects of capital gains taxation:
The supply-side lock-in effect.
actual tax effect on asset prices is unclear. Both the capitalization and the
lock-in effects influences market dealings. specially the capitalization effect
covers the lock-in effect that increased the chances of a decrease in the
capital gains tax rate, as buyers reacts for expected decrease in tax rates.
And the lock-in effect covers the capitalization effect at condition of falling
As these two
effects appearing to behave in different ways, clearly showing that the
interaction of the these effects and the conditions at which one effect
dominates the other influencing tax rate.
relation of taxes and asset pricing are complicated and concentrate on trading
strategies for investors to escape paying taxes and their impact on asset
prices when they got significant gains.