SECP proposes reforms to accelerate growth in Pakistan's REIT sector

The Securities and Exchange Commission of Pakistan (SECP) has introduced proposed amendments to the REIT Regulations, 2022, with the aim of boosting investment, increasing investor participation, and offering more flexibility to Real Estate Investment Trust (REIT) schemes. The SECP stated that the proposed reforms would lower the real estate income and asset thresholds from 75% to 65%, enabling more flexible structuring of REIT portfolios and accommodating a wider array of eligible projects.

Investment-focused REITs would be permitted to invest in vacant land and plots, provided they meet the necessary criteria. These reforms would expand investment opportunities by permitting group-level trusts and employee funds to invest in unlisted REIT schemes. The SECP also proposed extending the borrowing period for sponsors, directors, and associated entities from 24 to 36 months, while maintaining existing unitholder approval requirements.

Additionally, the proposed amendments would assist Regional Management Companies (RMCs) by permitting a one-year extension for listing Rental and Investment-based REITs in certain cases, where delays are beyond the RMC's control. The SECP further suggested that the proposed amendments would facilitate RMCs in acquiring properties from government entities through legally binding agreements, subject to conditions stipulated by the SECP to address procedural hurdles.

To provide regulatory clarity, the SECP has proposed a provision clarifying that Hybrid REIT Schemes, which combine Investment-based and Rental REIT elements, may generate and collect rental income from their real estate during the holding period. SECP Chairman Dr Kabir Ahmed Sidhu commented, "These reforms are designed to establish a more conducive REIT framework capable of attracting long-term capital, fostering wider investor participation, and unlocking the full potential of Pakistan's real estate sector."

The draft amendments have been submitted for public consultation, inviting stakeholders to provide their feedback and recommendations before the finalization of the proposed reforms.