Importance of REITs in Pakistan Real Estate

How were REITs developed?

President Eisenhower approved the REIT Act in the Cigar Excise Tax Extension of 1960.  Therefore, REITs were developed by Congress to enable investors to invest in large-scale properties with minimal investment. It has become a magnificent way for investors to have an income source in real estate.  

This REIT model is serving the people of more than forty countries to provide them with a passive income by investing in the units. Therefore, this REITs project facilitated the investors of commercial properties in America. REITs became able to manage real estate properties in the USA according to the Tax Reform Act 1986. 

REITs Development In Pakistan

REITs are the mutual funds that are mutual funds that are used to invest in real estate properties and share the profit among the unit holders. REIT Pakistan is a great initiative by Arif Habib Limited to enable investors with small capital to earn a handsome profit.

A Real Estate Investment Trust (REIT) is a way of enabling Pakistanis to have a source of income in the worst conditions of inflation. It’s a revolution in the Pakistani real estate industry because Globe Residency REIT (GRR) is available on the Pakistan Stock Exchange (PSX). Moreover, it is the first development REIT in Pakistan on the PSX to bring benefits to every investor.

Javedan Corporation launched GRR in November 2021 with nine apartments in Naya Nazimabad. It is a nine tower by Arif Habib Limited to initiate the REITs to involve the common people in the real estate industry in the presence of the stock market. The purpose of launching REIT in the real estate industry is to ensure tax benefits to investors in Pakistan. 

Why is there a need for REITs in Pakistan?

It is a prominent turning point in the property market of Pakistan because it enables everyone to invest in shareable assets. Therefore, It is a step towards avoiding unlawful scamming of properties in real estate. The developers have decided to bring transparency and liquidity to real estate. 

Javedan claims that “the REIT is established with the objective of upliftment and construction of the acquired real estate including the construction of residential units under the project named “Globe Residency Apartments” (the “Project”) for generating income for the Unit-holders.” The REIT has a lifespan of four years that is extended to five fiscal years because of limited scope.

The 10% of property units will be offered to the general public. The remaining 90% of units will be divided into 5% for the consultants and 85% for the shareholders of Javedan. This REITs project in Pakistan was handed over to the GRR for more than PKR 2 billion. The total value of available units in REIT Pakistan is PKR 1.4 billion. Therefore, GRR has to pay the remaining liquid cash to Javedan. 

What are the benefits of Pakistan First Development REIT?

The benefits of investing in REIT are given below:

Affordability

The investors can become a part of a larger pool of capital rather than their individual capital. It is difficult for individuals to make an investment directly in large projects such as shopping malls. Therefore, they can invest in properties via REITS.

Diversity 

The portfolio of REIT includes different properties in the form of tenant pools to bring reliability to investors. The risk of stand-alone investment is minimized through the utilization of REIT. This type of investment enables different people to get the opportunity for maximum profitability.  

Transparency 

It is a revolution in the market of real estate to ensure great flexibility and transparency for investors. Moreover, the procedure for selling and buying REITs in Pakistan has become very flexible. The good news about this new adventure in the real estate industry by Arif Habib Group is that REIT investors will be able to get detailed information about REIT prices through their involvement in REIT trading. 

Higher Yield 

The value of properties has a reflection in the REIT stocks during the time of economic activities in Pakistan. The most attractive factor in the Real Estate Investment Trust is capital that is owned by group investors in the REITs structure.

What are the Risks of Investment in REITs?

The following are the dangers associated with investing in REIT:

Market Risk

REITs trade in the stock market is a business model where the value of assets depends upon supply and demand. Therefore, it is possible that investors have to compromise on a lesser ROI than the investment. The market risk relies on the REIT management,  economy, property market, and interest rate in the country. 

Liquidity Risk

The property in real estate can become less liquid in comparison with financial securities such as bonds and stocks. The factor of liquidity is the unavailability of potential sellers and buyers because of the alleviated property rates. 

Legal Risk

There are also different legal risks in REIT, such as continuous litigation, payment dues, and disputation of property title. 

Final Words

REITs business is going to set new standards in the property market within Pakistan. Therefore, a lot of investors are ready to get several benefits by investing in property units. You can also consult with Makaan Solutions to make an investment in various housing projects such as Prism Town and Mega City.