KARACHI: Arif Habib Dolmen REIT Management Ltd is going to launch as many as four real estate investment trusts (REITs) within the next quarter, according to company CEO Muhammad Ejaz.

REITs are collective investment schemes that take money from investors and deploy it in real estate projects.

Speaking to Dawn on the sidelines of a corporate event on Thursday, Mr Ejaz said his company has already launched nine REITs, including two rental ones that aim to generate rental income.

REITs operate like any other company but offer a higher degree of transparency to investors because trustees — not developers — control all assets. The entity must list on a stock exchange within three years of inception — a feature that lets small investors take exposure to an otherwise capital-intensive and illiquid real estate market.

After the first REIT-based transaction that securitised and sold Dolmen Mall Clifton and the adjoining Harbor Front building for Rs22.2 billion in 2015, the REIT sector remained dormant for nearly six years. REIT managers blamed the absence of transactions on unfavourable changes in the tax and regulatory regimes that discouraged investors from taking part in REITs.

But the State Bank of Pakistan, Federal Board of Revenue and the Securities and Exchange Commission of Pakistan changed gear and made it attractive for investors, particularly banks, to put money in the real estate sector through REIT-based transactions.

The move yielded immediate results. TPL Properties Ltd, a subsidiary of TPL Corporation, recently achieved financial close of its first REIT fund.

Similarly, Arif Habib Dolmen REIT Management Ltd announced a few months back it is developing two housing projects in Surjani, a middle-income neighbourhood in Karachi. In addition, it has created three other REITs that’ll develop as many housing projects within Naya Nazimabad, a 1,300-acre gated colony set up on the northern outskirts of Karachi. The company has also come up with two rental and two developmental REITs in Lahore.

JS Group also announced last month the launch of its first REIT fund. Al Meezan Investment Management Ltd, the asset management subsidiary of Meezan Bank, has recently acquired a licence to run a REIT business.

“We have many new projects in the pipeline under the REIT structure,” said Ariful Islam, chairman of the asset management company, while speaking at the signing of a Musharaka agreement of Meezan Bank with Globe Residency REIT, the firm through which Arif Habib Dolmen REIT Management is building a multi-tower residential project in Naya Nazimabad with an indicative size of Rs18bn.

What changed?

The back-to-back rollout of REITs in a short span of time after years of no activity is reflective of the favourable changes to regulations. For instance, the SBP changed its capital adequacy benchmarks by “significantly lowering the applicable risk weight” from 200 per cent to 100pc on banks that invest in the units of REITs.

Similarly, banks can now invest up to 15pc of their equity into REITs as opposed to the earlier 10pc upper limit. Also, banks can now count their investments in REIT units towards their mandatory targets for housing and construction finance. In other words, investing in the shares of listed REITs for banks is now as good as loaning out money to home buyers.

“We’ll start listing our REITs as soon as the stock market situation improves,” said Mr Ejaz, noting that his company’s seven developmental REITs that have already been launched have a collective project cost of Rs450bn.

Published in Dawn, August 5th, 2022