REIT (Real Estate Investment Trusts)

Author: Saba Nisar
Real estate investment trust in Pakistan

What if I tell you that you can invest in real estate without having any money, just the way you can in stocks? And that availing this opportunity is as easy as registering yourself for a form.? Doesn't this seem like an incredible opportunity to you?

All of this is made possible through REITs.The SECP (Security Commission of Pakistan) introduced us to this amazing possibility in the shape of REIT, REIT is an investment trust where companies are registered, under the REITs regulation of 2015 as amended in 2018.

WHAT IS REIT?

Basically in literal form REITs is a corporate structure that is highly controlled and disciplined for the purpose of pooling capital for real estate development and investment. It is very similar to mutual funds in that they bring together a group of investors to pool their funds. In essence, a Reit is a sort of stock exchange investment.

THREE TYPES OF REITS:

The Real Estate Investment Trust Regulations, 2015 (the REIT Regulations) allow the following types of REITs to be launched in Pakistan:

DEVELOPMENT REIT:

Developmental REITs are a form of REIT that invests in real estate in order to develop it for Industrial, Commercial, or Residential purposes through building or renovation.

RENTAL REIT:

Rental REITs invest in commercial or residential real estate in order to generate rental income. Commercial or Residential rental income is generated through investing in Rental REIT

HYBRID REIT:

A hybrid REIT is one that has both a rental portfolio and a development property.

STRUCTURE TYPES:

In Pakistan, REITs have a trust structure. Trustees, the REIT Management Company (RMC), and investors are all listed on the trust form. The trustee and the REIT management firm establish the trust. The REIT fund's trustees are in charge of holding the fund's assets and overseeing the operations of a specific REIT Scheme.

First is REIT management company, Second is Trustee and Third is Unitholders

Deed of Trust

A trust deed establishes a REIT Scheme. It's a legal document that lays out the RMC's and Trustee's working relationship.

Providing Document

The offering document outlines the investment's goals and constraints, as well as its features, risk disclosure, fees, and dealing processes, as well as other resources.

PROCESS OF WORKING?

Any REIT must pass two tests and a number of periodic asset tests to verify that real estate sources account for the bulk of the REIT's income and assets.

Real estate-related revenue, like rentals from real property, development, or Hybrid, must account for at least 75% of the REIT's annual total income. Additionally, an extra 20% of the REIT's gross revenue must come from the above-mentioned sources or from non-real estate sources such as dividends and interest. Non-qualifying sources of revenue, such as service fees or a non-real estate company, cannot account for more than 5% of a REIT's income.

NEW REGULATIONS:

In the year 2018, REIT in Pakistan was stopped due to some issues. However, PM Imran Khan has introduced new regulations for the REITs that are likely to bring good returns for those who want to invest in this structure with aiming to achieve business. Additionally, REITs is going to bring

In 2018, SECP made several adjustments to the REIT regulatory framework, as well as adding new taxes. As previously stated, REIT laws were amended in 2015, and some taxes were imposed. In 2021, new rules are implemented, with certain taxes being decreased and others being eliminated. There are two types of REITs, according to the current laws:

  1. Public-Private Partnership and Pure Private Partnership
  2. Any Private organization can launch REIT with a Government organization in Public-Private Partnership

There is just one REIT registered in Pakistan. Which is a pure Rental REIT and is registered as Dolmen City REIT. No new REIT was established owing to taxes levied in 2016. After the Capital Gains Tax was repealed this year, new REITs are anticipated to emerge.

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