What is a REIT?

I have always been curious about real estate, but what makes me step back is owning and managing the property. That’s when I discovered Real Estate Investment Trust ( REITs).

Just imagine instead of buying a building or apartment yourself, you invest with others. Investing with others and earning income from rent and property sales. Yes it’s way too smarter and hassle free.

And here’s the exciting part, REIT give out 90% of their income as dividends. That means more returns to investors like us, who want income without any hassle.

Moving back to 2020 REIT worth $ 1.75 trillion , though it goes down in coming years of about $1.5 trillion by 2024. But in Pakistan, it’s still growing. Thanks to the Securities and Exchange Commission of Pakistan (SECP), that keeps things regulated and safe for investors.

How Does a REIT Work in Pakistan?

REIT works by pooling money from different investors, like you and me. Thus, it invests in income generating properties without buying and managing any property.

Types of REITs in Pakistan:

1. Developmental REITs: 

Its focus is to buy land and develop it. I came across the Silk Islamic Development REIT, which also buys the land, develops it and when the value increases it sells or rents the property.

2. Rental REITs:

Rental REITs don’t focus on developing a property, it simply focuses on already built properties. Here I came across Dolmen City REIT, which is a well known one, it manages office spaces and shopping malls.

3. Hybrid REITs:

Hybrid REIT as name indicates the mix of both renting and developing strategies. The best example is TPL REIT Fund, which focuses on making property valuable and also generating rental benefits from it.

Pakistan’s first and largest Shariah-compliant hybrid REIT, and its IPO was successfully oversubscribed by 46%, raising a total of PKR 563 million.

4. Progressive REIT:

Progressive REITs are a type of real estate investment trust (REIT) that prioritize sustainability and long-term growth. They often invest in properties that are energy-efficient, environmentally friendly, and contribute positively to communities. These REITs invest in properties that align with environmental, social, and governance (ESG) standards.

Sapphire Bay Islamic Developmental REIT, a progressive REIT, a prestigious initiative by the Ravi Urban Development Authority (RUDA) in Lahore, is being developed under a Public-Private Partnership model. This visionary Sapphire Bay project of Javedan Consortium (Part of Arif Habib REITs) aims to create Lahore’s first riverfront community, prioritizes sustainable development and will ensure a significant portion of the land is dedicated to green spaces and public use, enhancing the quality of life for residents and visitors alike.

• Externally Advised REIT:

This structure involves hiring a third person. Although they hire experts that invest their best in it. But they might have their own financial incentives and lead to higher fees. Moreover, their decisions are more favorable to themselves than to shareholders.3 Effective Investment Process of REIT:1. Pooling Capital:The investment process is all about pooling capital from the investors. So it results in a big fund that is then used in buying and managing valuable real estate assets.It’s like being a part of a team that can tackle bigger and innovative projects together. That we as an individual can’t afford on our own.2. Transparency and Valuation:They create transparency by regulatory reporting of their assets to investors. REITs use methods like Net Asset Value (NAV) and Funds From Operations (FFO) , to analyze how they are performing. 3. Distribution of Income:As discussed above REITs share at least 90% of their income with investors as dividends. This process promotes growth and stability. Market Performance of REIT:REIT maintains its market performance by working strategically. Here’s how:1. Liquidity and Trading:They traded on many stock exchanges. Also, for investors like us it’s easy to buy and sell shares. REITs grew because of liquid investments.2. Historical Growth:We see REITs showing strong historical growth. It outpaces the traditional stocks mostly when the economy is stable.3. Future Projections:In 2024 the global REIT will reach about $1.5 trillions. This growth is massive even with recent economic ups and downs.Regulatory Framework of REITs:When it comes to the regulatory framework of REITs, it’s again more exciting to learn how its regulatory framework applies.1. Governing Body:In Pakistan, I learned that the Securities and Exchange Commission of Pakistan (SECP) is in charge of REITs. They set the rules for REIT under the REIT Regulations of 2015.2. Fund Management:I found it interesting that a REIT Management Company (RMC) holds about 20%- 50% of the units in REIT. This ensures that our interests are aligned.3. Profit Distribution:Distribute 90% of their profit as dividends. Promotes transparency and helps REITS to avoid corporate income tax on these profits.