Pakistan's real estate sector booming but growth not showing on PSX

Arif Habib Dolmen REIT Management CEO says eight projects shelved plans to get listed

KARACHI: Pakistan’s construction and real estate sectors are booming, but the growth doesn’t show on the country’s stock exchange.

A strict taxation regime has meant many mega projects have either been shelved or gone ahead without the blessing of equity investors.

“At least eight mega projects in the real estate sectors worth approximately Rs80 billion have shelved plans to get listed at the Pakistan Stock Exchange (PSX) in the last two years,” Arif Habib Dolmen REIT Management Limited Chief Executive Officer Muhammad Ejaz told The Express Tribune.



Arif Habib’s Dolmen REIT (Real Estate Investment Trust) is the only share in the sector to be listed at the PSX and it took a decade to do so. Since then, no other REIT has approached the stock market for funds, and Ejaz believes higher rates of taxes that took effect from July 1, 2016 are a primary reason.

Ejaz said a proposal has been sent to the finance ministry to undo changes in the tax regime. “This may attract eight mega [real estate] projects to the PSX in the time to come.”



He said his company alone has withheld plans for five REITs. Three other potential REITs were Lucky Cement’s Lucky One Mall in Karachi, Nishat Group’s Emporium Mall and Packages’ Packages Mall in Lahore.

He said that doing away with additional taxes would help the government document construction and real estate projects and earn comparatively higher revenues.

PSX Managing Director and CEO Nadeem Naqvi told The Express Tribune that the Ministry of Finance has given a positive response on the PSX budget proposals, particularly on REITs.

Budget proposals

Prior to July 1, 2015, profits and gains (unrealised) accruing to a person on sale of immovable property to both REIT Schemes (Development and Rental) were exempted from tax.

However, the Finance Act 2015 inserted a proviso; whereby this exemption restricted only to the profit and gains on sales of immovable property to a Development REIT Scheme up to June 30, 2020. It is proposed that the exemption available to the Finance Act, 2015 be restored and made available up to June 2020.

Resultantly, new REITs will distribute mandatory dividends, which will result in generation of new tax, thus enhancing of revenue under this head.



Moreover, tax on dividend on Stock Funds (including by implication listed REIT funds) was applicable at 10%. However, Finance Act, 2015 inadvertently inserted listed REIT Fund in the category of Money Market Funds, thereby imposing a high rate of tax to dividends on listed REITs.

It is proposed that investment in listed REIT units be treated as investment in Stock Fund (as REIT Funds are listed fund) which are currently wrongfully classified with Money Market or Fixed Income Fund.

It would give higher tax income to the government despite reduction in rate of the tax, as more investment would come into real estate via REITs.

Published in The Express Tribune, May 24^th, 2017.

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