Fund size for real estate trust cut to Rs2b

The Securities and Exchange Commission of Pakistan (SECP) has slashed the fund size for a Real Estate Investment Trust to 60%

Ghazanfar Ali June 18, 2010

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has slashed the fund size for a Real Estate Investment Trust (REIT) by 60 per cent to Rs2 billion compared to Rs5 billion earlier.

Besides, it has also reduced capital requirement for the management company of REIT by the same 60 per cent to Rs200 million against the previous Rs500 million.

The easing of conditions “will address the issue of capital constraints and enable even medium-size projects to qualify for becoming REIT,” the SECP said in a press release on Thursday.

REIT being a formal structure allows raising money from general public, through issuance of securities listed on stock exchanges, to be invested in real estate opportunities.

The SECP said it has also made other significant amendments, vide SRO 516(I)/2010 dated June 16, to REIT Regulations 2008 in a bid to make them more conducive for stakeholders.

“This is a step forward to enhance the interest of investors in launching REITs in Pakistan.

“REITs will not only encourage organised real estate development in the formal economy but will also contribute to generating employment and diversifying the investor base. REITs will add a new asset class to the country’s capital market,” the SECP said.

The SECP has also allowed issuance of units against real estate and rental REIT scheme on multiple sites which will enhance operational flexibility. Moreover, REIT management companies (RMCs) have been permitted to draw their fee on quarterly basis instead of annual.

The cap on holding of units in a REIT by a single investor has been enhanced for government institutions. Private investors will also benefit from government-owned properties forming part of a REIT as these properties have a clear title and usually generate consistent cash flows.

The SECP said a new concept of hybrid REIT has been incorporated into the rules to introduce a composite product promising rental income as well as capital gain. “This will now permit the RMCs to build properties for sale and retain/acquire a few properties for rental purpose.”

The SECP said it hopes that the amendments will open up the real estate market to small investors who do not have enough capital, expertise or time to take advantage of profits and gains in the sector.

Published in the Express Tribune, June 18th, 2010.


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