The Securities and Exchange Commission of Pakistan (SECP) has reduced Real Estate Investment Trust (REIT) fund size from Rs 3 billion to Rs 250 million and fund manager's capital from Rs 200 million to Rs 50 million, attracting new investments in the REITs in the country.
Sources told Business Recorder here on Wednesday that the SECP proactively facilitated the launch of first REIT. REITs were created as a vehicle through which small investors could gain access to large-scale, income-producing real estate properties. The concept grew throughout the world, and many countries introduced regulatory framework for REITs in their jurisdictions.
The facilitation started with issuance of SECP's new REIT Regulation in 2015, introducing major reforms, including removal of entry barriers, simplification of approval procedures and opening up avenues for accessing capital to meet genuine needs and performance-based incentives for REIT managers, which were absent in the 2008 REIT Regulations. These changes were introduced after consulting real estate industry, recommendations made by the NBF Reform Committee and studying of REIT regulations issued by some Asian countries. Owing to this facilitation, an enabling environment was made available to facilitate the launch of REITs in Pakistan, which has resulted in the listing first REIT in South Asia.
Pakistan promulgated the REIT Regulations in 2008 keeping in view the industry dynamics at that time. The REITs, however, were unable to take off due to changes in macroeconomic factors such as a high discount rate, lower rental yields and some bottlenecks in the regulatory framework which had made REITs less attractive. Apart from that, the properties proposed for REITs also had problems of title clearance, litigations, encumbrances, encroachments, valuation, etc.
REITs offer many advantages for the economy. These will help bring transparency in deals, discover market price, reduce rate of duties, control litigation, build confidence among sellers, buyers and investors of properties, induce builders to develop properties with standard amenities, encourage compliance to laws, generate jobs and give impetus to economic activity.