Pakistan planning first real estate investment trust in six years

KARACHI: Pakistan has created its first Real Estate Investment Trust (REIT) after a span of six years, as the country tries to improve its regulatory environment and provide incentives to the domestic construction industry.
The REIT was set up by Arif Habib Dolmen REIT Management Limited, which launched a similar initiative in Pakistan in 2015.
“We have created the Silk Islamic Development REIT last month,” Muhammad Ejaz, chief executive officer of the company, told Arab News over the phone from Toronto, Canada. “The process for the creation of Silk World Islamic REIT is also underway.”
The company is planning to raise about Rs8 billion ($50 million) through private placements in both REITs for housing projects in Karachi’s Surjani area where about 146 acres of land will be developed into commercial and residential units.
“As far as our planning is concerned, we are surveying the market to identify the right product time and the optimal product mix. Once that is done, we will engage our product designer,” Ejaz said. 
The company is hoping to offer the two REITs for sales within 18 months, following the completion of regulatory approvals, property transfers, market study and environment impact assessment.
“The whole process of approval, including the NOCs [No Objection Certificates] and environmental impact studies, is expected to take around nine to 10 months. We are confident to introduce this in the market within 12 to 18 months,” he said.
Asked about the expected returns on investment, Ejaz said the company was targeting between 18 and 25 percent of internal rate of return (IRR).
The existing Arif Habib Dolmen City REIT, which owns Karachi’s prominent Dolmen Mall and office tower, has announced a dividend yield of Rs1.24 per unit or 12.4 percent for the year that ended June 30, 2021, according to a company announcement.
Pakistan is currently facing an overall housing backlog of 10-12 million units. To fill the widening gap, Prime Minister Imran Khan had promised to construct five million houses and offer various incentives to the construction sector to achieve the target.
These incentives were announced in April 2020 and included a tax amnesty scheme for the construction sector that barred the authorities from questioning investors, builders and buyers about their sources of income if they put cash in the real estate business.
Ejaz said the government had substantially encouraged development activities in the country which had invited huge interest from investors.
“There are three major factors behind our decision to launch these REIT: The first is the facilitation of the central bank that has made it easier for other banks to participate in the real estate sector; the second is the amended regulatory framework by the Security and Exchange Commission of Pakistan which has created a conducive business environment; and the third is the Federal Board of Revenue’s decision to reduce the disadvantage of REIT as compared to the other informal construction sector,” Ejaz said. 
Analysts say REITs offer huge investment opportunities to those who find it difficult to benefit from the real estate sector due to high prices.
“REITs are transparent and documented investment instruments that are made available in capital markets which encourage commoners to invest amid astronomically high real estate values,” Samiullah Tariq, director research at the Pakistan-Kuwait Investment, told Arab News on Monday, adding that it was important to rationalize the country’s tax structure to make REITs more attractive.