SECP grants permission to two REIT management companies

[Naveed Yaseen]

ISLAMABAD (March 14 2009): The Securities and Exchange Commission of Pakistan (SECP) has granted permission to two REIT Management Companies (RMC) in Pakistan. According to an SECP announcement on Friday.

The SECP had received four applications for formation of RMCs out of which two companies ie Arif Habib REIT Management Company Limited and AKD REIT Management Company Limited have been granted permission whereas the other two applications have been rejected owing to non-fulfilment of regulatory requirements.

When asked about the non-fulfillment of regulatory requirements by applicants, sources clarified to Business Recorder that regulations of Non-Banking Finance Company (NBFC) rules, Companies Ordinance 1984 and REIT regulations have not been fulfilled by two companies, whose applications were rejected by the commission.

It is important to mention that the REITs are a new product to Pakistani Capital Market and the enabling law for Real Estate Investment Trusts (REITs) was notified in the past. Under this law the mega real estate projects can be securitized and investors can trade units on the stock exchange.

According to the REIT regulations, the schemes are envisioned as Developmental and Rental. In a developmental REIT, the REIT Management Company (RMC) will undertake a construction project and after selling the property the sales proceeds will be distributed among the unit holders. The "RMC" means a REIT management company licensed by the Commission as a NBFC to launch REIT Scheme and provide REIT Management Services.

The SECP said that pursuant to launch the REITs product in February 2008, SECP has taken major steps to promote the implementation of international best practices in the field of valuation. The real estate valuation (ie 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.

The second group of five officers also visited Malaysia to visit valuers and REIT management companies operating in Malaysia. REITs in Pakistan are introduced in the form of a trust where the property itself will be vested in the name of the trustee and REIT Management Company (RMC) will look after the Real Estate on behalf of the unit holders.

RMC will have a minimum of 20 per cent stake in the scheme and will receive a management fee for provision of their services. People will be allowed to invest through units of the REIT Scheme which will be listed on stock exchange. The REIT will be a specialised investment vehicle.

The development of REITs in Pakistan will ensure enabling fiscal and legal environment conducive to reduction in transaction cost, simplification of procedure, transparency in real estate transactions and tax incentives for all stakeholders including investors, sponsors and real estate participants.

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