SECP introduces REIT rules

The Securities and Exchange Commission of Pakistan (SECP) has introduced the Regulator Framework for Real Estate Investment Trust (REIT) in a ceremony held in Karachi on Wednesday. After the introduction of Regulatory Framework for REIT by the Securities and Exchange Commission of Pakistan (SECP), Pakistan has become the first emerging market that took this initiative.
The objective of the REIT is anchored around the concept to introduce an alternative asset class with the purpose to add depth to the capital market and provide transparency to the real estate sector in the form of comprehensive disclosures and accountability through a closed-end scheme.
Addressing the ceremony, Federal Finance Minister Dr Salman Shah said that REIT was part of the new initiatives taken up by the SECP. The launch of REIT reflects the commitment of the government to provide an enabling environment to the financial and real estate sector. Such initiatives by the government intend to foster the growing needs of the economy and re-emphasise its investor-friendly policies.
He expressed confidence that effective regulations by the SECP will help in the growth of the real estate sector of the country on strong, transparent, and well-documented foundations. He congratulated the chairman and the commissioners of SECP on the launch of REIT.
He said: "REITs will provide opportunities to general public to pool funds for participation in real estate ownership and are expected to have an overall positive economic impact on our economy. Around the world REITs are seen as an important tool for stimulating the growth and development of real estate investment market.
REIT offers investors the benefit of a stable and diversified stream of income from property, as well as the opportunity for long-term capital appreciation. He commended SECP's diligent efforts to create an enabling environment for REIT in Pakistan. SECP Chairman Razi-ur-Rehman Khan, in his address, said that the Commission continuously strives to offer regulatory frameworks for new products and improvement in the existing laws to meet the needs of the growing market. "The most recent development," he maintained, "is the introduction of REIT.
The recent amendments made to Part VIII-A of the Companies Ordinance, 1984, through the Finance Bill, 2007, empowers the Commission to make regulations in relation to section 282 of the Ordinance. Accordingly, in exercise of the powers conferred by section 282B (2) of the Ordinance, REIT Regulations 2007 have been introduced.
It is worth mentioning here that Pakistan is the first emerging market to initiate REIT. The current regulations envisage two type of REIT ie Developmental and Rental. In Developmental, REIT a property is constructed and sold, whereas in rental the property is rented and the unit-holders receive returns from the rent of building. In Pakistan, a REIT project will be above Rs 5 billion.
To safeguard the interests of unit-holders, the SECP has specified a Trust structure, in which the assets are in the name of Trustee and the REIT management company manages the operations on behalf of the unit-holders. REIT has the potential to become a valuable addition to both the financial markets and the real estate sector in Pakistan through a bond of unique product features with the benefits of mutual funds and the property market. REIT will be a pooled investment vehicle, managed professionally by fund managers (licensed REIT Management Companies).