SBP allows foreign investment in REIT schemes

Amends foreign exchange manual that also permits withdrawal of investment

KARACHI:

Pakistan has allowed REIT management companies (RMC) to attract foreign investment in their projects which include real estate, agriculture, mobile towers and renewable energy through privately negotiated deals before the projects’ units are available for trade at the stock market.

Every Real Estate Investment Trust (REIT) scheme is bound to get listed on a stock market like Pakistan Stock Exchange (PSX) within three years from the date of registration. The central bank has amended the foreign exchange manual to allow REIT companies to invite foreign investment and let investors withdraw investment even in the three years between the date of registration and going live at the PSX.

The State Bank of Pakistan (SBP) said in a circular on Friday that the existing provisions allowed non-residents to invest in REIT schemes listed at the stock exchange and through new public offers.

“In order to further facilitate foreign investment in REIT schemes, in addition to the existing provisions, it has been decided to grant general permission to RMCs to issue their units through private placements and transfer such units in favour of non-residents.”

A couple of management firms have registered around a dozen real estate development and rental schemes worth over Rs600 billion since the authorities amended REIT regulations in June 2021. Besides, the Securities and Exchange Commission of Pakistan (SECP) issued 16 licences for the establishment of RMCs during 2022.

Talking to The Express Tribune, Arif Habib Dolmen REIT Management Limited (AHDRML) CEO Muhammad Ejaz said there was an anomaly. “The latest amendment in the foreign exchange manual has removed the anomaly, allowed foreigners to investment in REIT schemes in those three years that fall between the schemes’ registration and listing at the stock exchange.”

Otherwise, foreign investors, like the local ones, were allowed to invest and divest in REITs while their units were made available for trading at a bourse, he said.

Ejaz stated that everyone was considering approaching foreigners to attract investment, but the anomaly was putting them at bay.

“We may not invite foreign investment immediately amid partial shutdown of the economy…as investors are waiting for the revival of International Monetary Fund (IMF) loan programme to consider investing in Pakistan.”

Moreover, overseas Pakistanis heavily invest in real estate through remittances, but that could not be repatriated to them earlier. “The latest amendment in the foreign exchange manual allows foreigners to withdraw the investment as well (as practiced through the Roshan Digital Account – RDA).”

Earlier, REIT schemes were limited to the real estate sector. New regulations, ie the Real Estate Investment Trust Regulations 2022, introduced in December 2022, also allowed RMCs to build projects and invite investment in agriculture, mobile towers and renewable energy.

Every REIT project is bound to be fully documented unlike the real estate projects established by non-REIT entities.

So far, only two REIT schemes have been listed at the PSX in the past eight years after the related regulations were announced years ago. The first listing took place in 2015 and the second in 2022.

Management companies say they will get around a dozen REIT schemes listed at a stock market in the next couple of years.

The SBP’s latest amended regulations say the companies issuing shares or REIT funds issuing units, out of new public offers, on a repatriable basis, as permitted, may open foreign currency collection accounts with banks abroad or in Pakistan for receiving subscription in foreign currency.

In this respect, they may also allow refunds from these accounts to the unsuccessful applicants. The amount subscribed by the successful applicants should be repatriated to Pakistan and foreign currency accounts closed within a week of the allotment of shares/ units.

In addition, the original Proceeds Realisation Certificate, as an evidence of subscription money having been repatriated to Pakistan, shall be obtained by the company from the concerned authorised dealer to be submitted to the designated authorised dealer.

In the case of remittance of subscription money directly sent to Pakistan and its payment to the fund’s rupee account (opened in the name of trustee), private funds/ REIT funds may issue units for the rupee equivalent paid by the concerned authorised dealer.

Similarly, in the case of transfer of listed shares and units of funds under the stock broker’s original memo and PRCs in respect of the cost of shares/ units and transfer stamp money may be issued. “Where the sale of shares/ units is negotiated privately, documents establishing the deal and the price of the share/ unit on stock exchange should be furnished on the date of the deal,” it said.

Published in The Express Tribune, March 26^th, 2023.

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