The REIT law, which provides the regulatory framework for the investment in real estate in Pakistan, will accordingly be modified to facilitate growth and protect investors' interest.
The current real estate market is plagued with a number of problems, which deter an average Pakistani from investment. The issues range from lack of transparency in title verification, difficulty in accessing and comprehending land records, prolonged litigation on property matters, delays in project completion, and interruptions in delivery of services. It is expected that REITs would take care of these issues to a large extent. It may be recalled that the REIT law was notified a couple of years ago, but it needed certain adjustments to match the market practices and conditions.
Sources anticipated that REITs will: (i) provide retail investors the opportunity to share the dividends from the robust real-estate sector; (ii) facilitate professional developers in undertaking mega-construction projects without the traditional liquidity issues that property development companies are confronted with; and (iii) maximise the efficiency of property utilisation by creating an equilibrium between demand and supply of property on the one hand and professionally managed properties on the other hand.
REITs may be established in Pakistan under REIT Regulations after obtaining licence for REIT Management Services from the Commission. In the first instance, RMC is required to obtain approval of the Commission for the real estate that it desires to use for the REIT scheme. The Commission also approves the constitutive document for registration of a REIT Scheme. REIT shall operate as a listed closed-end fund and its units shall be traded on the stock exchange. No less than ninety per cent (90%) of the REIT income is to be distributed among Unit Holders of a Scheme as dividends in each financial year. The law also envisages valuation of the real estate included in the REIT scheme by qualified Valuer, on a quarterly basis.
Parties to a REIT, other than the unit-holders, include:
1. An independent trustee, as specified in the trust deed for constitution of the REIT that would hold the title to the assets of the REIT and oversee its operations.
2. A RMC as Manager of a REIT Scheme.
3. A Valuer that would be appointed by the RMC, subject to the conditions specified in the Regulations, for valuation of the real estate held by the REIT.
4. A Quality Assurance Manager will be appointed by the RMC for assuring quality and control for the development project undertaken by a Developmental REIT and a Property Manager in case of a Rental REIT Scheme to be appointed by the RMC.
Fee is negotiated by parties for different services. REITs can be set up in cities and areas stated in the Regulation.
It is expected that improvement in the regulatory framework and the conducive tax regime would provide necessary impetus to launch REITs in Pakistan. REITs will encourage transparency in deals and formalise price discovery mechanism in the real estate market, which would ultimately lead to increase in overall revenue of respective governments and land authorities from this activity, sources added.