The only REIT in the country recently announced its second full year financial performance for FY17 on the stock exchange last week and reported a rise of around 13 percent in top line, which includes both rental and marketing income. The growth in rental income, which makes up for the majority of the total income (95 percent) stood at 12 percent year-on-year, while the marketing income too increased by 22 percent year-on-year.

The REIT’s administrative expenses were 15 percent of rental income in FY17 versus 13.7 percent in FY16. However, net operating income for Dolmen City REIT went up by 11 percent year-on-year. Adjusting for management fee, trustee remuneration and levies, profit before change in fair value of investment property stood at Rs2.6 billion, up by 12 percent. REITs enjoy tax advantage, and hence Dolmen City REIT is not liable to income tax provided it meets certain conditions.

Dolmen City REIT is the only listed REIT in South Asia. Its occupancy level reached 98.38 percent by the end of FY16 compared to 95.15 percent in FY15. Compared to this, the occupancy rates are expected to have increased in FY17 given that the occupancy level of the property in the 3QFY17 stood at 99.74 percent versus 99.68 in the corresponding period of FY16.

The REIT’s year end profit is after changes in the fair value of the investment property. According to the firm’s annual reports, this investment property comprises of Dolmen City Mall and Harbour Front Building. Harbour Front has 100 percent occupancy level. The valuations of these properties have been carried out by National Engineering Services Pakistan (Private) Limited (NESPAK). However, during the third quarter of FY17, the REIT Management Company (RMC) of the Dolmen City REIT appointed MYK Associates (Private) Limited as the valuer of the scheme for the period of three years, after the term of agreement with NESPAK expired in February 2017. The new valuer was to conduct its first valuation of REIT’s assets in June 2017.

Despite its investment benefits, the concept of Real Estate Investment Trust has not taken off in Pakistan. And one factor for the snail-paced progress has been the taxes.

The last changes made were in FY16 Federal Budget where the capital gains tax exemption was limited to developmental REITs for residential purpose only, while Dolmen City REIT and many others in the planning stage are rental REITs.

The budget also increased tax on dividends on REIT investments. A favourable tax regime and simplified processing remain key factors in the growth of REITs in the country.