First REIT scheme compliant with Shariah approved

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has approved registration of the first Shariah-compliant developmental Real Estate Investment Trust (REIT) scheme in Pakistan under the revamped REIT regulatory framework.

“The Arif Habib Dolmen REIT Management Ltd, a company having a successful track record of launching the only REIT scheme in the country, has successfully partnered with leading business groups for entering into an arrangement with a commercial bank, enabling launch of the Shariah-compliant developmental REIT Scheme called the Silk Islamic Development REIT (SIDR),” an SECP official told Dawn.

Other partners in SIDR are Yunus Brothers Group that owns Lucky Cement Ltd, Fatima Group, Arif Habib Corp, Liberty Group and Arif Habib Dolmen.

The Shariah-compliant REIT scheme envisages investment in undeveloped land in Karachi, aiming to uplift the area and develop the real estate, including construction and sale of apartments and commercial units by the REIT Management Company for generating income for unit holders.

Pursuant to registration of the scheme and approval for issuance of units, the REIT scheme can raise funds through offer of units to private investors for acquisition and development of the proposed real estate.

Plan to raise Rs8bn

According to a Bloomberg report, the Arif Habib Dolmen REIT plans to raise Rs8 billion via private placements in two REITs, including SIDR, for a housing project in Karachi.

The SIDR will focus on apartment buildings and commercial developments while the second Silk World Development REIT that includes real estate developer World Group will develop villas.

Muhammad Ejaz, the chief executive officer of Arif Habib Dolmen, said it planned to purchase the land in about two months, partly from Silkbank Ltd.

“This is a developmental REIT with an expected internal rate of return of more than 30pc,” Mr Ejaz said, adding that the older REIT, which holds rental assets including Karachi’s most prominent mall and an office tower, offers a dividend yield of around 12pc a year.

Earlier this year, the SECP significantly revamped the REIT Regulation 2015. This signifies that the amendments introduced have proven to act as the much-needed catalyst for the REIT sector, which was previously relatively dormant.

Amendments to the REIT Regulations in 2015 only yielded launch of one rental scheme, whereas successive amendments in 2018 could not provide desired outcome of mobilising further such schemes within the country.

Growth in the REIT sector will lead to better documentation, formalisation, governance, transparency and investor protection in the real estate sector and provide opportunity to small investors to benefit from growth in the real estate sector.

The industry is reviewing on Prime Minister Imran Khan’s incentives and regulatory changes to make REITs more attractive for investors and developers.

While incentives have been given to tax evaders if they invest in construction projects and banks have been asked to increase their outstanding mortgages by at least 5pc by December, Finance Minister Shaukat Tarin in the new budget had lowered the dividend payment tax on REITs to 15per cent from 25pc.

“The government has chosen the right sector for growth,” Mr Ejaz of the Arif Habib Dolmen said.