Thinking the REIT Way | Advantages of REIT
If you are planning to invest in real estate in Pakistan than it is time to think the REIT way. There are a lot of advantages of REIT as a vehicle for your real estate portfolio and imlaak.com is here to help you with deciding what is best for you.”
REIT offer great benefits and safer options to invest in real estate along with along with the ease and advantages of investing in publicly traded stock. REITs, provide dividend-based income, competitive market performance, transparency, liquidity, inflation protection and portfolio diversification.
REIT offers distinct benefits to the unit holders and share holders and thus give them an opportunity to invest without doing all the hard work. In this article we will cover the advantages of REIT specially in the context of Pakistani real estate market.
If you dream of becoming a developer the only obvious way is either to have enough funds to do it on your own or enter in a partnership or a Joint venture. We have seen that due to weak judicial system and regulations in Pakistan such partnerships and joint ventures usually end up in trouble and projects get stalled for years and years thus devastating the entire feasibility and reputation of the project.
In case of REIT though individual emotions or wants are not any more a problem and the entire project is strictly regulated by third parties such as RMC (REIT Management Company), SECP (Stock exchange commission of Pakistan) and CDC (Central Depository Company) as trustee which holds the land and the control of escrow account as well so that no one can hoodwink the system.
Besides these obvious benefits, litigation against the REIT are strictly discouraged by courts as it is a public company and therefore public interests are always protected by the legal system.
One of the usual issues we face in Pakistan unfortunately is that some people are good at finding back doors and thus depriving the system from transparency for personal gains.
REIT closes doors for any irregularities and offers a transparent system of investment for all parties involved. REIT is a public company and has to disclose 100% details of every contract, accounts and dealings it enters for the project so a 100% transparency is guaranteed.
Starting from approvals of the plans, land procurement, business feasibility, construction costs, consultancy costs, marketing costs and down to single Ruppee everything is strictly regulated and accounted for.
Capital gains or profits is the main concern for any investor and the reason any one wants to invest in real estate.
In terms of paper feasibility, REIT may offer slightly less profits (5 to 10%) from normal partnerships but in truth we all know that is not how things are done in Pakistan. The only reason for this 5 to 10% less profit is due to involvement of various regulatory and consultancy authorities who have to be paid, including the RMC .
In real world the things are quite different considering the Pakistani market and risks involved, it is safe to assume that investing in REITs will offer you high profitability rather than investing in private partnerships. Transparency, involvement of trustee, regulators and immunity from legal issues will make it a highly profitable model in Pakistan.
If you want to invest in a project that is worth a few billion PKR , you will need to invest at least a billion or a half to be a partner.
This is not the case when it comes to REIT and you can actually become a part of a REIT at fraction of the cost while enjoying the same advantages you would enjoy as a wealthy developer.
The baseline set by SECP for a pre IPO investor is 3 Million PKR , while for bigger projects REIT may raise the limit but even than it is very convenient. As an example for 8 to 10 Billion project a suitable investment can be between only 20 to 30 Million PKR.
In the conventional way of investing you will have to do the project study, feasibility, sit in hundreds of meetings to finalize and above all when the project starts you will have to spend hundreds of hours to manage day to day issues.
On the other hand investing in a REIT is very convenient and saves you from all the hard work. So all those people who have busy routines in businesses and do not have time can enter REITs for investments in real estate developments without having to worry about day to day management.
In addition if you just want to buy shares, it is as easy as 1, 2, 3 and you can use a good brokerage house to manage your REIT portfolio without having to do it on your own.
Dividend Pay Out
We all know hard it can be when selling properties ourselves or receiving rents every month from tenants. Dividend in case of REIT is the profit for equity/developmental REITs and rental in terms of rental REIT.
REITs offer great dividend pay outs without having to worry about collecting rents or selling property. It gives you a great chance for wealth accumulation and benefit from monthly dividends in rental REITs.
When you invest in a project, you actually invest in a certain property inside that project may it be plots, apartments or commercials.
REIT however allows you to invest the conventional way or you can be a unit holder and invest or lastly you can buy shares from the stock market.
Your unit holding and your shares can be traded in the stock exchange and offer you an unmatched liquidity and trading options.
Debt Free & Shariah Compliant REIT
REITs are usually 100% equity financed and debt free thus free from related cash flow distress and default risks. In addition a REIT can be designed to be Shariah compliant, interest free if that is a concern.
Now that you know how you can take an edge while using REIT as the preferable vehicle for your real estate investment and projects, do share with us in the comments below if you will like to use it for your next investment or project?.
Investment Consultant and CEO at Imlaak
Mob : +92 333 1717170 ( WhatsApp)
Captain Shahnawaz Bhatti (Retd) is the founder and CEO of Imlaak which is based in DHA Lahore. He has represented a large number of investors in a wide array of real estate transactions. With more then 8 years experience in commercial real estate, marketing and real estate project management, he has a proven track record of guiding national and multi-national clients with their real estate portfolios and asset management. He is also an active real estate blogger and offers free advice through his articles. Imlaak handles real estate transactions valued at well over 9000 million every year. Our specific area of expertise includes strategic planning , transaction management, asset trading, partnerships & venture capitalist with experienced business owners, entrepreneurs, inventors & some proven-concept start-ups. In a very short time, Imlaak has introduced a new vision of professionalism, transparency and hard work in the real estate industry. ‘There is no better time to invest in real estate than today’ Captain S. Bhatti