Obviously buying a registered car from an honest seller is better than buying an unregistered car from a crook. But when you say that, you are making the assumption that all the people who sell unregistered cars are crooks. There are several honest sellers for unregistered cars as well.
Assuming that both the sellers are honest, the reason people prefer unregistered cars over registered ones is because when a car is imported from Japan, it comes with a full auction sheet which gives all the details of the car. And before the car is sent from Japan, it is thoroughly inspected and it's record is checked for any history of accidents or repairs. Thus you don't have to take the word of a desi mechanic for the condition of a car. The auction sheet is a 100% secure and authentic way of determining how the car has been used.
Moreover, driving conditions in Japan are generally much better than they are in Pakistan, ie. the roads are much smoother and therefore there is less wear and tear of the car. A car that has been driven 10,000km's in Japan will be in much better overall condition than one that has been driven the same amount in Pakistan, obviously assuming that both were driven by people of equal driving sense.
The assumption that you make about crooks who drive a car for a year as AFR and then sell it is negated by the fact that the auction sheet states when the car was imported. Therefore, it is a bad idea to buy a car that was imported a year back, which is common sense really..
I highly doubt that it has anything to do with one's ego. For the reasons that I mentioned above, people just generally feel more secure buying unregistered cars (something that is reinforced by the fact that most registered cars are indeed in a better condition than their registered equivalents).
