Details

Case

LAHORE RESIDENTIAL REAL ESTATE: BUY VERSUS RENT DILEMMA

Dr Fazal Jawad Seyyed, Dr Muhammad Ahmed Saleem Baig, Research Associate Ms Hafsa Ashfaq

INDUSTRY : Real Estate

AREA : Finance

ORGANIZATION :

LENGTH : 5

LUMS No : 02-650-2019-1

PUBLICATION YEAR : 2019

KEYWORDS:

Rent, buying property, Lahore, real estate, property

DESCRIPTION:

In early 2019, Bilal Malik, a bank employee, was considering moving out of the joint family set up along with his wife and two sons. He had contacted an old friend Faizan Ahmad, a real estate agent, to help him find a suitable house at a good location in Lahore, near his parent’s house in WAPDA Town. Bilal was inclined to rent an 8 marla house but was also willing to consider the purchase option, as suggested by Faizan. Rental was a relatively easier decision compared to the purchase option, primarily because of the long-term commitment and a massive initial funding requirement. However, owning the property had numerous socioeconomic benefits. Given the real estate dynamics and his circumstances, Bilal wanted to take his time to carefully analyse the buy versus rent decision using the time value of money concepts.

LEARNING OBJECTIVES:

The case would provide students with an opportunity to: 1. Understand the concept and techniques of the time value of money. 2. Understand the estimation of present value and future value. 3. Learn about the residential real estate dynamics of a major city, Lahore. 4. Estimate relevant cash flows, including the equated monthly payments using the time value of money framework. 5. Evaluate the alternatives of buy versus rent through quantitative analysis using the time value of money framework.

SUBJECTS COVERED:

Finance