Engineering Post Report
Real Estate Investment Trusts (REITs) are investment schemes that own and most often, actively income-producing real estate. Through such schemes, investors may own, operate or finance income- generating property across various real estate categories. A REIT investor owns real-estate backed units that sell like other units/listed security, thus enabling the holder of the units to invest directly in real estate .
Pakistan’s REIT sector has shown growth during the last more than three years with prioritization of the sector by the government, the capital market, and banking regulators. Security and Exchange Commission of Pakistan( SECP’)’s widespread outreach efforts coupled with supportive. Fiscal initiatives and timely regulatory reforms, creating flexibility and efficiency in the REIT model with reduced entry barriers and more options for structuring a real estate transaction under a broader REIT project umbrella, have felled unprecedented investment in the sector. As on December 2022, the size of the industry was Rs 167 billion. Since then, the number of REIT schemes has increased to thirteen, with 18 Non-Bank Finance Companies ( NBFC)’ having REIT management services license.
Sometime back, State Bank of Pakistan had notified amendments to the Foreign Exchange Manual, allowing investment by foreigners in units of REIT schemes through private placement/ issuance of new units and/or transfer of existing units to the non-resident investors on a repatriate basis under the general exemption provisions. Although investment in listed REITs was already allowed through a special permission Account (SCRA) , foreign investors earlier required special permission from the State Bank of Pakistan for investment in unlisted REITs.
REITs provide a transparent , well-structured and better governed mode of investment for the foreign investors targeting Pakistan ‘s real estate sector. With the immense potential to fundamentally reform Pakistan’s real estate sector and revolutionize its development through better documentation, formalization, and enhanced investor protection mechanisms, REIT Scheme can offer a wide range of benefits to both local and foreign investors. More importantly, an independent trustee overseeing a REIT Scheme ensures that the funds collected are used dedicatedly for the particular REIT project and the scheme is operated under the applicable laws and relevant constitutive documents.
REIT schemes can enable the foreign investors to easily diversify their portfolio by investing in a range of real estate projects managed by the professionals having duly required experience in the local real estate sector and the financial markets, both local and foreign. A conducive tax environment quite obviously can also ensure a level playing field for local and foreign investors, and once a scheme is listed as per the mandatory listing rule, necessary liquidity and flexibility are also made available for easier entry and exit.
Strong upside potentials, robust governance arrangements, and enhanced transparency and investor protection mechanism, being in place, can hopefully be expected to position Pakistan’s REIT sector as a viable emerging investment destination destination for the foreign investors, eyeing exposure to the real estate sector of the country.
