Government to enhance the scope of REIT Assets

REITs or Real Estate Investment Trusts refers to investment companies created with the sole purpose of channelling investible funds into operating, owning, or financing income-producing real estate. Generally, a REIT invests in physical real estate like shopping malls, hotels, apartments, etc., and distributes the rental income or capital gain to its shareholders. In Pakistan, this new asset class has created much hype in the investors’ market. In the past two years, around ten REITS have been launched in the country, showing huge growth potential. As per regulation, these companies were only allowed to invest in real estate, real estate-related, and non-real estate assets.

Considering the importance of REITs, the Securities and Exchange Commission of Pakistan (SECP) has decided to enhance the scope of REIT assets in Pakistan in different sectors like agriculture, transport, power/energy, etc. This initiative aims to introduce new REIT products, create ease for RMCs in launching different REIT schemes, and shift towards a reporting-based regime. The universe of REIT assets is being proposed to be enhanced by allowing the following additional segments under the REIT Scheme: i) agriculture; ii) healthcare; iii) transport; iv) power; v) energy; vi) telecommunication; vii) water and sanitation; viii) social, cultural, and commercial segment; and ix) any other segment/real estate asset as allowed by the commission.

REITs offer many advantages to interested investors. It provides a regular income stream along with reduced portfolio volatility and dividends and wealth accumulation. As a result of it being a listed entity, it is bought and sold with ease providing great liquidity. It is a natural hedge against inflation as returns have been seen to consistently outpace Consumer Price Inflation. In Pakistan, there are different types of REITS including Rental REITs, Developmental REITS, and Hybrid REITS. Recently, SECP has proposed several amendments to REITs Regulatory Framework to create ease for REIT management companies. Investing in REITs is considered the best investment strategy. However, this investment model is new in Pakistan and needs proper management to be fully utilised.