ISLAMABAD: To promote investment in the real estate sector through Real Estate Investment Trusts (REITs), the Securities and Exchange Commission of Pakistan (SECP) has introduced a new Public Private Partnership (P3) model under the REITs, besides completely revamping the regulatory framework for REITs.
The SECP Chairman, Aamir Khan, told Business Recorder that the REITs sector has significant potential to contribute to the growing housing and infrastructure needs of the country.
He expressed confidence that the amendments have removed all impediments faced by bonafide potential issuers and the sector may witness growth in the coming financial year.
The new model would create further flexibility, efficiency and ease of doing business to enable REITs to compete with the relatively unregulated and informal real estate sector of the country.
The new procedure would also reduce regulatory approvals and rationalise various document submission requirements, the chairman SECP added.
According to the SECP, the amendments have shifted the regulatory structure from approval-based to disclosure-based issuance, reducing entry barriers for new REITs, making REITs competitive with the unorganised sector-led real estate projects, cutting down regulatory approvals and attracting domestic and foreign investment into the formal real estate sector of the country.
The regulations have been finalised after extensive consultations with all the stakeholders, with a view to bring in amendments in conformity with domestic market conditions and in sync with globally-recognised norms.
The revised framework has made clear segregation between conventional and infrastructure categories, i.e. non-PPP REITs (for conventional projects) and PPP REITs (for P3 infrastructure projects).
The REIT Management Companies (RMCs) may pursue developmental, rental or hybrid options under both these classifications.
Moreover, a number of regulatory approvals and document submission requirements have been rationalised.
A REIT scheme can invest in real estate, either directly, or through acquisition of shareholding of the company (the SPV model) that owns the real estate.
In the SPV model, the earlier condition of transferring the title of real estate in the name of the REIT scheme is eliminated.
To speed up and simplify the process, approval of real estate is no longer required from the SECP, as the onus of evaluating quality of real estate is placed on the RMC and the trustee.
Limits on leverage and performance fees have also been uncapped and permission has been granted to allow use of customer advances allowed for project-related expenses.
Also, holding’s in the REIT scheme by strategic investors and RMC have been rationalised by linking the same to initial fund size.
Further, the existing non-PPP REIT schemes are allowed to acquire additional real estate in existing REIT schemes with the approval of the unit holders.
The PPP REITs are allowed to partner with the government for PPP infrastructure projects.
It is ensured that the REIT regulations would not create any interference with the terms of the concession agreement, the main document governing PPP infrastructure projects.
The P3 model of infrastructure REITs provides a viable solution to streamline investments for the country’s ever-growing infrastructure needs, the SECP added.
Copyright Business Recorder, 2021
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