New REIT regulations ease funds creation
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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has notified new regulations for the Real Estate Investment Trust (REIT), easing the requirements for establishing funds.
REIT Regulations 2015 have replaced REIT Regulations 2008, considered a failure as only five funds were established under its ambit.
These included AKD REIT Management Company, Arif Habib Dolmen REIT Management Ltd, CCUREIT (Pvt) Ltd, Orange REITS Management Company Ltd and STREIT Pakistan (Pvt) Ltd.
The REIT regulations primarily concerned with the developmental REIT schemes for construction of properties and the rental REIT schemes for renting out completed properties.
“The major reason for limited success of previous regulations was cumbersome requirements for establishing a REIT company which could only be met by big groups,” said an official of the SECP. “But at the same time, there are limited checks on housing schemes mushrooming all over the country — where nobody even bothers to check the ownership of the land,” he added.
The official added that REIT is needed to streamline the real estate sector which is largely undocumented and rife with malpractices.
Several key changes have been made in the new regulations to accommodate stakeholders and key players in the real estate sector.
The paid-up capital requirement of REIT Management Companies (RMCs) has been reduced from Rs200 million to Rs50 million.
The minimum stake of RMC in a REIT Scheme has been reduced from 20 per cent to 5pc.
In the Regulations 2015, the concept of strategic investor has been incorporated who will hold 20pc stake in a REIT Scheme.
To include mid-sized properties into REIT Schemes, the minimum fund size requirement of Rs2 billion has been reduced to bring it in line with the listing regulations of stock exchanges.
“The other main advantage of REIT fund is that its units can be floated as shares in the stock markets and ordinary investors can take advantage of the rising real estate prices through these units,” said a manager at a REIT management company. “However, to make REIT a success there is need to for provinces to enforce land related laws,” he added.
At the same time criterion for rental track record has been prescribed for REIT eligible properties.
As there is a huge potential for real estate market and robust business activity in large cities, REITs can be established in cities other than provincial and federal capitals.
Fund raising from pre-IPO investors has been allowed in the name of Trustee after registration of REIT Scheme subject to sharing of business plan.
Buyers of property from a developmental REIT Scheme have been adequately protected as the customer advances will be received through banking channels and in the name of Trustee only and subject to certain disclosure requirements.
Published in Dawn, April 21st, 2015
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