In Pakistan, managing a REIT is not easy, but there are a number of opportunities. Real Estate Investment Trust (REIT) is a mutual fund that focuses on investment in properties and real estate and derives income from such investments for its unitholders.
A REIT Management Company (RMC) identifies a project and raises public money through an Initial public offering (IPO). The RMC then buys a property (in the case of the Rental REIT Scheme) and rents it out. The rent is then distributed to the unitholders (The shareholders of the REIT Scheme are known as unit holders). In the case of a developmental or Hybrid REIT Scheme, an RMC identifies the project, raises public money through IPO, constructs, and then either sells the project or rents it out. The money received due to sale or rent is distributed among the unitholders.
It can also be explained as REIT as a mutual fund that focuses on investment in properties and real estate and derives income from such investments for its unitholders who are individuals as well as corporates/ institutions. REIT Scheme is a listed closed-end scheme registered with SECP under REIT Regulations 2015. REITs in Pakistan have a trust structure. The trust structure consists of trustees, the REIT Management Company (RMC), and unitholders. The trust is established by the RMC and the trustee under Trust Act. A REIT Management Company identifies a project and raises public money through an Initial public offering (IPO).
The Securities and Exchange Commission of Pakistan (The SECP) regulates the Real estate investment trust. The REIT Management Company, REIT scheme, and the trustees are subject to monitoring by the SECP. REIT is governed by the following laws:
- The Companies Act 2017 (Previously the Companies Ordinance, 1984)
- Non-Banking Finance Companies Rules, 2003;
- REIT Regulations, 2008;
- Other applicable laws
- Income Tax Ordinance, 2001; and
- Trust Act, 1882.
A REIT Management Company abbreviated as RMC is an Asset Management Company (AMC) listed company or Trust, licensed by the commission as a Non-banking financial company (NBFC) to launch REIT Scheme. The RMC is licensed under the NBFC Rules, 2003, and is obligated to abide by the provisions of the Companies ordinance, 1984, NBFC Rules, 2003, and the REIT Regulations, 2008. It is important to understand that only a REITs manager, registered with SECP, can offer an authorized investment in real estate.
Among the responsibilities of REIT include:
- Ensuring that the prospectus and other legal documents are properly filed, compiled, and distributed as per requirement of regulations.
- Ensuring reporting fundamentals are properly met.
- Making sure REITs regulations are in accordance with the rules specified or outlined by SECP.
Pakistani nationals over the age of 18 years having a National Tax number or holding a Computerized National Identity Card are eligible to become participants in a REIT fund.
A trustee in the case of a Real estate investment trust can be a bank or a financial institution appointed with the approval of the SECP responsible for offering investment in mortgages and properties. Its responsibilities include:
- Collection of the contributions as required by the terms of the trust.
- Ensure that the economic and financial aspects of REIT assets are properly managed in the sole interests of the unit holders.
- Ensure the overall processing complies with all applicable laws, rules, and regulations, including the terms of the trust documents.
- Formulating strategies which could act in the best interest of the beneficiaries.
- All the contributions, investments, returns on investments and other incomes earned by the RMC are held by the trustee on behalf of the participants.
A custodian could be a person or financial institution generally acting as a caretaker or watchdog, who watches over RMC’s unsafe investments. The custodian watches over REIT assets and ensures that the REIT Scheme is managed according to the guidelines stipulated in the trust deed to minimize the risk of mismanagement by the RMC. The involvement of the custodian lessens the risk of any malpractices that may be harmful to the interests of the unitholders and the general public at large.
2- Procedure For Incorporation of REIT Company
Below is the brief procedure on Incorporation and Licensing of REIT Management Company in Pakistan.
NOC for Formation of NBFC to operate as RMC Application to Specialized Companies Division, SECP Headquarter Islamabad for obtaining permission to form an NBFC along with the following documents:• Form I of the NBFC Rules along with all relevant supporting documents• Fee with Form I (as per Schedule II of the NBFC Regulations)
Incorporation of REIT Company as Public Limited Company in Pakistan Incorporation of company, at concerned Company Registration Office, SECP as per the existing procedures, forms, and fees.
Licensing Application to Specialized Companies Division, SECP Headquarter Islamabad for grant of license for REIT Management Company to undertake the business of REITs Form II of the NBFC Rules along with all relevant supporting documents• Fee with Form II (as per Schedule II of the NBFC Regulations)