After a thorough process that witnessed years of delay, the Securities and Exchange Commission of
The commission had received four applications for the formation of the real estate investment trusts, which also included a school chain from
A REIT company requires real estate with a minimum value of Rs5billion.
The SECP says the other two applications were rejected 'owing to non-fulfilment of regulatory requirements.'
REITs are a new product to Pakistani capital market and the enabling law for real estate investment trusts was only ratified by the SECP last year. Under this law, mega real estate projects can be securitised and investors can trade those securities on the stock exchange.
The REITs are designed to provide a structure for investment in real estate similar to mutual funds which offer diversified investments in stocks. A REIT is a security that sells like a stock. Its rules allow indirect investment in real estate that are expected to yield, in most of the cases, 90 per cent of its profit in the shape of dividends to shareholders.
In fact, the size of the minimum investment is huge (Rs5billion minimum) and investors were thinking twice before venturing into the new realm, an SECP official told Dawn.
But, the process of formation of REITs, the SECP official believe, is slow everywhere keeping in view the size of the money involved.
Despite several legal and tax-related hurdles at the provincial and federal levels, experts still see a potential market for REITs in
The SECP officials also believe that there are several organisations that owned real estate and were best suited for launching RMCs i.e. the Pakistan Railways, hotel and school chains, shopping malls and owners of commercial buildings.
For the time being, REITs are being close-ended and can be set up in
The number of REITs in
To promote the new product in
At present, there is no method of price discovery in the real estate sector. Only a handful of properties retain transparent leases. Real estate is often seen simply as a vehicle for turning black money white.
A report of the SECP experts, who had investigated the prospects for REITs, have found up to 900 pc differentials between the real price and recorded price of real estate in Karachi. Another issue is the tax load is as high as 28 per cent.
The report says the cost of eight kanal of land in
Moreover, the government has imposed two per cent Capital Value Tax (CVT). The overall tax load on registration and commercialisation of eight kanal is 28 per cent i.e. Rs290 million in
The SECP has recommended the federal government to abolish CVT as it was a provincial matter. The commission also seeks abrogation of rent control law in
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