SECP promoting best practices in REIT valuation

[Naveed Yaseen]

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has taken major steps to promote the implementation of international best practices in Real Estate Investment Trust (REIT) valuation.

Launching REIT product in February 2008, the lack of transparency is a major bottleneck in the real estate sector in Pakistan.

The SECP has built a strong REIT implementation team, which is multi-disciplinary and includes a civil engineer and a real estate broker.

To study REIT licensing and evaluation, SECP selected Malaysia as a relevant jurisdiction. Five officers of the Commission were sent on a study tour to Malaysia to understand the problems and issues faced by the Securities Commission Malaysia in the monitoring and regulation of Malaysian REITs.

A number of meetings were held with the Malaysian regulator and with the Institute of Surveyors to get a first hand knowledge of the REIT market in Malaysia.

A second group of five officers is leaving for Malaysia on Friday to visit valuers and REIT management companies operating in Malaysia.

Both the visits have been funded by a World Bank (WB) grant. Under WB grant, Elvin Fernandez, an expert in the field was invited to Pakistan to advise on the implementation of international best practices in the field of valuation.

During his week long stay in Pakistan, Fernandez met and trained SECP officials, visited large real estate developments and reviewed Pakistan’s fiscal and legal environment.

The REIT Regulations of Pakistan have been prepared after consulting the International Valuations Standards Committee (IVSC) standards.

He also met the leading accountants of Pakistan with regard to the implementation of IVSC standards by the accounting profession.

The SECP has also applied for the membership of IVSC. The SECP is presently an associate member of the Asian Public Real Estate Association (APREA) and Salman Ali Shaikh, commissioner SECP is a member of the governing board of APREA.

He was of the view that the present valuation methodologies used in Pakistan are primitive and need to be brought to international standards at the earliest in order to conduct fair market valuations particularly in case of REITs.

He was of the view that SECP (in collaboration with SBP) should assist the valuation profession to create an institute which would license valuers, have a system of examinations, implement international best practices and standards.

However, under the Finance Act 2008, the tax load on the rental income from real estate has been greatly enhanced. It is feared that this will greatly reduce the level of transparency in lease transactions. staff report

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