Investing in Pakistan’s bubbling real estate market may not be within the reach of an average investor. This is the reason why this asset class has remained in the hands of a few privileged investors. The ticket, however, lies in REITs, where even small investors can reap the gains of real estate boom. Finally after a long cooling-off period, Pakistan is jumping on the REIT bandwagon.
Last week, Arif Habib REIT Management Company won SECP’s approval for nation’s first real estate investment trust (REIT). Considering that a large portion of country’s real estate sector goes undocumented hence forming part of the black economy, the development has been labeled as a quantum leap in making real estate sector a transparent one, and as transparency evolves, better price discovery will be the fruit.
“Arif Habib’s REIT scheme will be backed by two buildings: Dolmen City Mall (Clifton) and Harbor Front Building. The rental income earned will then be dished out to investors in the form of dividends. Here, we are targeting a return of approximately 9 percent in the form of dividends, said Nasim Beg, Chairman at Arif Habib REIT Management Company.
Considering that the rental agreement of these buildings entails a yearly escalation in rentals, the returns can be expected to step up with the passage of time. According to Beg, the return can even go up to 14-15 percent in a time span of four to five years. “Contrary to government bonds where coupons are fixed and hence carry the risk of eroding purchasing power with rising inflation, this annual escalation in rentals will keep the REIT scheme in level with inflation, he enlightened further.
It should be noted that the launch is happening at a time when the property market is showing signs of a cool-off. Given the increase in tax levies in the budget coupled with the likelihood of further rate cuts in the offing, real estate sector seems to be losing lustre (Read BR Research column: “From real estate to equities..”, published on January 19, 2015). However, the upcoming REIT scheme seems well guarded considering that the space is already rented out while being efficiently managed. Besides, its sophisticated location makes it less vulnerable to any shocks in property prices.
In any case, REITs should provide an impetus to the property market in the long term as developers will now be having a new channel of funding to initiate fresh projects.
To give a background, country’s intellectuals have been putting forward their views on the potential for REITs for over a decade. However, after a great deal of deliberations, Pakistan finally baby stepped into the global REIT market in 2008 when SECP introduced REIT regulations. The regulations were then further amended in 2010 in an attempt to facilitate REITs.
Arif Habib REIT and AKD REIT Management are the only two REIT management companies operating in the country since 2009. Though, with respect to the approval of REIT schemes, the progress had been long-winded for which the regulator is to be held responsible. However, with the first ever approval of REITs, it looks like the regulator is on the move.
Be that as it may, the event has raised the spirits of Arif Habib REIT’s management. “We are very excited that this has finally happened. About the delays in approvals, we understand that Pakistan has been new to the concept of REITs, hence the regulator had to be extremely careful in its course of action.” cherished Beg.

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