A significant change in the nation’s real estate market is anticipated after Pakistan’s first development real estate investment trust (REIT) starts issuing units for subscription on the Pakistan Stock Exchange (PSX) this week.
According to Muhammed Ejaz, CEO of Arif Habib Dolmen REIT Management Limited (AHDRML), the REIT’s public offering on Wednesday will essentially mark the beginning of the end of real estate speculation. In addition, he predicted that within the following five years, the REIT model will be adopted by the entire industry.
The CEO claimed that even though Pakistan’s real estate market has long been seen as profitable, only major investors have access to it, and liquidity is a major issue. With REIT, property ownership can be divided into manageable chunks.
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“If you buy a plot for Rs. 50 million and need Rs. 1 million, you can’t just take it out. Because of its size and lack of liquidity, the real estate market was out of reach for the average person. Switching to REITs was the answer to this problem, he said.
The CEO continued by saying that because operating in the REIT mode requires more accountability, transparency, and discipline, financiers are more at ease. Investors can feel secure knowing that assets are managed by a trustee like the Central Depository Company (CDC), which also performs thorough oversight, and that an escrow arrangement was chosen.
It is critical to understand that the real estate investment business is at the core of the REIT sector. According to the senior executive, because the regulatory landscape is changing, it’s critical to strike a balance that allows REIT operations while also providing a solid framework for upholding discipline, responsibility, and transparency.
In essence, REITs have developed into a method for documenting and formalizing the nation’s real estate market. Due to improper documentation, the size of the sector is unknown.
REITs to Normalize in the Next 5 Years?
Between 2015 and 2020, just one REIT was launched. However, after the regulators looked into and changed the regulation, 12–13 REITs were released last year. According to this viewpoint, if all issues/problems are resolved in this manner, all real estate businesses across the country will switch to the REIT model within the next five years.
According to him, real estate is the country’s largest investment sector. He claimed that the documentation, formalization, and normalization of the system under the REIT model would aid developers in determining whether the plan is workable.
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“By using REITs to do business, we can reduce our workload,” Ejaz claims that this is because each project under this model would have a primary business plan that would need to be approved by everyone (the developer, the REIT management company, the trustee, the SECP, the PSX, the underwriter, and the rating agencies) before it could be presented to investors.
He noted that, in contrast to the stock offerings of the REITs of the time, it appeared that real estate investment would be the only profitable activity up until 2020, particularly in new developments and plot speculation.
Upcoming Offering
Globe Residency REIT (GRR), Pakistan’s first development REIT to be listed on the PSX, will hold its general subscription on December 14 and 15. Javedan Corporation Limited has made 14 million units or 10% of all the units in the REIT Scheme, available to the general public for a price of Rs. 10 each. The REIT plan’s units will be distributed to JCL stockholders in an amount of 85%, with 5% going to real estate consultants.
If there was a book building involved, market regular investors would have paid a premium to bid on the GRR because the majority of risks (clear title, possession, approvals, sale, contracts, and construction) have already been taken care of.
The smaller investor who often avoids market investments but hopes to own a home stated, “We’ve done something unusual by presenting a level-playing field to investors of all classes to come forward and participate in a properly documented real estate firm.”
If everything goes as planned, according to Ejaz, the 10% offer will encourage small savers to participate in the industry and generate respectable profits over the long term (30% projected return).
