A Real Estate Investment Trust (REIT) is a tradable security akin to a stock, representing direct or indirect investments in real estate. This leads to various types of REITs, including Equity REITs and Mortgage REITs. Equity REITs involve property ownership, with revenue tied to rental income, while Mortgage REITs focus on property mortgage investment, with revenue primarily derived from interest earned on mortgage loans.
Historically, in Pakistan, real estate investments were conducted through bilateral transactions or by participating in schemes launched by different developers. Both approaches have drawbacks: bilateral transactions require substantial capital, and investment in developer schemes operates in a relatively less regulated sector. Consequently, the general public’s involvement has been limited, contributing to a fragile and unstable real estate market in Pakistan.
In this blog, Graana.com discusses some of the top real estate trust companies in Pakistan.
What is REIT?
A Real Estate Investment Trust (REIT) is a company that either owns or finances income-generating real estate. Modeled after mutual funds, REITs provide a means for investors of various kinds to receive regular income, achieve diversification, and experience long-term capital appreciation.
Typically, REITs distribute 90% of their taxable income as dividends to shareholders. Some notable characteristics of REITs include the diversification they offer, attractive dividend yields, liquidity, and transparency. The concept of REITs originated in the United States during the 1960s, describing vehicles for collective investments in real estate.
This idea quickly gained global traction, leading many countries to introduce REITs within their respective jurisdictions. When viewed over extended time frames, the returns of REITs listed on stock exchanges have often surpassed those of the S&P500, Dow Jones Industrials, and NASDAQ Composite.
Benefit of REITs
A typical Real Estate Investment Trust (REIT) presents several advantages for investors:
Accessible Indirect Investment
Investors can engage in indirect real estate investment through a professionally managed portfolio held in tax-transparent structures. This opens up real estate investment opportunities to small investors who might not otherwise have access.
REITs allow participants to broaden their investment portfolios, providing a means to diversify risk.
Typically, REITs are tax-transparent, experiencing only one level of taxation. The REIT itself does not pay tax on profits, maximising dividends to shareholders. This structure often involves distributing a substantial portion of profits to shareholders and, in some cases, even all profits.
This can be advantageous for institutional investors, such as pension funds and foreign investors, offering a more direct means of real estate investment while addressing tax complexities.
REITs are traded on stock exchanges, facilitating the ease of liquidating assets into cash.
Historically Low Volatility
REITs tend to demonstrate stability, making them an attractive option for investors seeking historically low volatility and appealing returns.
Top REIT Companies in Pakistan
The following are different Real Estate Investment Trust Companies in Pakistan:
- SB Global
- Arif Habib Dolmen
Established in 2017, the Imarat Group of Companies aims to bring innovation and modernity to Pakistan’s real estate sector. Drawing on their extensive experience in the United Kingdom, where they collaborated with brands like Arun Estates and Douglas Allen, the developers are committed to achieving this goal.
With a focus on Islamabad and Rawalpindi, the company has already introduced five projects. The inaugural project, Amazon Mall in Islamabad, was followed by the launch of Imarat Builders Mall. The company remains dedicated to delivering exceptional projects, including the Mall of Imarat, Golf Floras, Florence Galleria, and G-11 Amazon Mall.
The recently formed REIT management company include four projects sourced from IMARAT Group’s extensive portfolio of 15 projects. These chosen endeavours exemplify the group’s dedication to innovation, sustainability, and providing significant value to its investors.
Projections indicate that the saleable inventory for these REIT projects is anticipated to reach a noteworthy $1 billion over the next few years. This substantial figure highlights the considerable potential of the venture and the significant returns it may generate for investors.
Established in March 2016, SB Global REIT Management Company Limited stands as the inaugural REIT management firm headquartered in Lahore. The sponsors of SB Global RMC have ventured into this endeavour with the goal of promoting REITs as a viable investment option in Pakistan, aiming to unlock the untapped potential of the country’s real estate market.
Globally, REITs have proven to be a highly successful investment model, offering individuals—both retail and high net worth—as well as institutional investors access to real estate investments. The promoters of SB Global RMC bring with them international experience in managing and developing real estate projects, demonstrating a profound understanding of the dynamics within the country’s real estate sector.
Established in 2019, TPL REIT Management Company Limited (TPL RMC) is the premier provider of REIT management services in Pakistan, operating under the regulation of the SECP. As a wholly-owned subsidiary of TPL Properties Limited (TPLP), TPL RMC was founded to leverage the sustainable real estate development and management expertise of its parent company.
TPL RMC introduced its inaugural fund, the Sustainable Development Fund (REIT Fund I), featuring a diversified portfolio of real estate asset classes in Pakistan, all aimed at achieving LEED Certification. The fund’s mission is to contribute to the decarbonisation of Pakistan’s cities by focusing on sustainable and climate-centric developments.
Moreover, these initiatives support technology ecosystems, heritage preservation, and environmental considerations, ultimately uplifting living standards and addressing the shortage of commercial and residential properties resulting from rapid urbanisation in Pakistan.
Furthermore, TPL RMC’s foreign subsidiary, TPL Investment Management (TPL IM), operates as a fund manager registered in the Abu Dhabi Global Market, holding a 3c fund manager license.
Arif Habib Dolmen
A joint venture between the Arif Habib Group and the Dolmen Group, AHDRML was incorporated as a public limited company (un-quoted) in 2009 under the Companies Ordinance, 1984 and registered under NBFC Rules with the Securities and Exchange Commission of Pakistan (SECP).
The objective of the company is to launch and manage REITs on carefully selected and commercially viable real estate properties with the aim of bringing real estate investment within the reach of common investors. The company combines the expertise of Arif Habib and Dolmen Group, bringing together strengths in finance and investments, market gap identification, property development and 360-degree property management.
Frequently Asked Questions (FAQs)
Following are the most common questions and their answers for Real Estate Investment Trust Companies In Pakistan.
What are REITs in Pakistan?
REITs, or Real Estate Investment Trusts, in Pakistan, are financial instruments that enable investors to pool funds for indirect investment in real estate. These trusts typically invest in income-generating real estate assets such as commercial properties, residential complexes, and infrastructure projects. Investors in REITs receive returns in the form of dividends based on the performance of the real estate portfolio.
What is RMC in Pakistan?
RMC stands for Real Estate Management Company in Pakistan. In the context of REITs, an RMC is a company responsible for managing and overseeing the operations of a Real Estate Investment Trust. Its duties include selecting and managing real estate assets, ensuring compliance with regulations, and distributing returns to investors.
What is a real estate investment trust company?
A Real Estate Investment Trust (REIT) company is an entity that manages and operates a portfolio of income-generating real estate assets. Moreover, these companies pool funds from investors to invest in a diversified range of properties. Investors receive returns from real estate investments in the form of dividends.
Why are REITs not very common in Pakistan?
REITs are not as common in Pakistan primarily due to historical investment practices. Traditionally, investors in the country have conducted real estate investments through bilateral transactions or have participated in less-regulated schemes launched by various developers.
Additionally, regulatory complexities and the requirement for larger capital sizes in bilateral transactions have contributed to a lower participation rate from the general public, resulting in a less developed and stable REIT market in Pakistan.