The Securities and Exchange Commission of Pakistan (SECP) has decided to take fresh measures to attract investors in the real estate sector reducing paid up capital from Rs 200 million to Rs 50 million for Real Estate Management Company (RMC) under the proposed Real Estate Investment Trust (REIT) Regulations 2014. A senior SECP official told a select group of journalists at the SECP Headquarters on Monday that the commission has proposed comprehensive changes in the REIT Regulations to attract maximum investors in the real estate sector.
The new rules would be issued for the registration and regulation of REIT Management Company. One of the major initiatives is to drastically cut the RMC capital requirement from Rs 200 million to Rs 50 million under the new rules. The company paid up capital requirement was very high which has proposed to be brought down. The new regulations would be presented before the policy board for approval. An RMC shall submit evidence that it has at least equity of Rs 50 million at the time of seeking approval of the Commission to the offering document. The new rules will be aligned with the new listing regulations. The SECP will rescind the existing regulations for implementation of the new Real Estate Investment Trust (REIT) Regulations, 2014.
The provisions of the Real Estate Investment Trust Regulations, 2008 shall stand repealed from the commencement of these Regulations. Official said that the new scheme has introduced the concept of three types of REITs, ie, "Developmental REIT Scheme", "Hybrid REIT Scheme" and "Rental REIT Scheme". "Developmental REIT Scheme" means a REIT Scheme established for investment in real estate with the object of development of such real estate for industrial, commercial or residential purposes, through construction or refurbishment. The "Rental REIT Scheme" covers a REIT Scheme established with the object of making investment in industrial, commercial or residential Real Estate with the purpose of generating rental income. The "Hybrid REIT Scheme" means a REIT Scheme which has a Developmental component and a Rental component.
The role of trustee has been enhanced in the proposed Real Estate Investment Trust (REIT) Regulations, 2014. Trustee could be a scheduled bank, central depository company registered with the Commission or such other company as the Commission may notify in the gazette. A trustee shall exercise due diligence and vigilance in carrying out its functions and duties under the constitutive documents, these regulations and all other applicable laws. He would ensure that the REIT assets are held by it on behalf of the unit holders in accordance with the provisions of the constitutive documents, these Regulations and all other applicable laws. He would also ensure that the title to all REIT assets is lawfully vested in it; deposit the money received by it in a scheduled bank, which has a minimum ''''AA'''' rating and confirm to the commission that the RMC has appointed an engineering consultant or a facilities manager, as the case may be. The trustee would also confirm to the commission that all insurance premiums have been paid by the RMC and the insurance policies are up-to-date.
In case an RMC intends to purchase real estate, wholly or partially, from the funds contributed by Pre-IPO investors it shall share all material information including the documents relating to location, valuation and title verification with pre-IPO investors to obtain commitments for investment, they said.
Explaining the prerequisites for registration of a REIT Scheme, they added that the RMC shall, in the case of a Developmental REIT Scheme, acquire Real Estate in the name of Trustee after making full payment against land including all applicable fees and obtain all requisite approvals from the concerned authorities to carry out the project. In the case of a Rental REIT Scheme, RMC shall ensure that a binding purchase agreement of the Real Estate has been executed in the name of the REIT Scheme upon payment of consideration as per market practice and ensure that the Real Estate has been granted completion certificate by the concerned authorities, all dues are clear and the real estate does not have any defect which may render it ineligible for rent or subsequent sale by the REIT Scheme. RMC shall obtain a due diligence certificate from a lawyer that the Real Estate vested in the REIT Scheme is free from all defects including any disputes.
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