Real estate investment trusts: Group to help boost investment in sector

MoU worth $80m signed by Arif Habib Group. Punjab Board of Investment Trade to set up a Reit in Punjab.

DUBAI/KARACHI: Real estate investment trusts (Reits) will help broaden investment in Pakistan from local and Gulf-based investors as the country struggles to promote itself as a growth market, Pakistan-based real estate executives said.

Arif Habib, the chief executive of Arif Habib Securities Limited (AHSL), said much of Pakistan’s current real estate development was small in nature and lacking in transparency – issues that keep investment at bay.

“Reits will formalise the real estate sector and allow the general public to participate,” Habib said in an interview with Reuters in Dubai. “It will also allow foreign investors to come to Pakistan knowing that the investment will be closely regulated.”

Net foreign investment in Pakistan fell 28.4 per cent to $745.8 million in the first four months of fiscal year 2010-11 as a shaky security situation and a Taliban insurgency put off investors.  A delegation from Punjab visited the UAE this week to drum up financial investments from the oil-exporting Gulf state, showcasing real estate as one potential growth market. However, Pakistan’s real estate sector has historically been plagued with accusations of corruption and high-profile scandals in the sector.

Property deals are often “off the books,” and participants tend to be from among an elite few, Habib said. Reits would provide an opportunity to diversify the investor base in the sector through a regulated, tradable investment.

In the pipeline

Reits have not been officially launched in Pakistan but Habib said that his Arif Habib Group, the holding company for AHSL, had received approval for two of the four applications it filed with the Securities and Exchange Commission.

Habib said that one Reit, based in the port city of Karachi, is expected to launch by the first quarter of 2011. He said that the four Reits together will amount to a $400 million investment scheme, available for local and foreign investors.

Habib also signed a memorandum of understanding with the Punjab Board of Investment Trade in Dubai on Monday to set up a Reit in Punjab, the most populous province in the country. The deal, if completed, would be worth $80 million.

Habib said he expects his company’s Reits to largely focus on social and low-cost housing to accommodate the vast population in Pakistan. Long- term returns over 3 to 7 years are seen above 30 per cent, he said.

While investors of Pakistani Reits may benefit from entering into documented real estate deals with “white money sources” that offer competitive returns, government incentives also make the trusts an appealing proposition for developers, said Mohammad Aamir, head of business development at AKD Reit Management Company Limited.  Aamir said fiscal incentives allow for transactions to be tax-free for a seller and if a Reit distributes 90 per cent of its profits, it did have to pay income tax or withholding tax.

AKD Reit, along with Arif Habib Group, was granted permission to become Pakistan’s first real estate management companies last year.

Published in The Express Tribune, December 16^th, 2010.