The State Bank of Pakistan (SBP) in collaboration with the government of Pakistan has been playing a significant role to support the national property and construction sector for the past few years. In 2020, it introduced the ‘Mera Pakistan Mera Ghar’ scheme, which aimed to facilitate people looking for low-cost housing finance.
Also, known as the ‘Apna Ghar Sasta Karz’ scheme, this SBP-powered markup subsidy programme has resulted in record growth of housing and construction finance in the country, which has gone up by PKR 54 billion or 36% in just three quarters of the 2020-21 fiscal year.
According to a recent development, the central bank has taken another prominent step towards the economic betterment of the country by easing up banking regulations to facilitate investors and key stakeholders of the property industry. So, let’s learn more about the latest initiative by SBP to encourage real estate investment in Pakistan.
More About the Latest Initiative By SBP to Boost Real Estate Investment
The official circular of SBP mentions, “In order to provide further support to the development of real estate sector, State Bank of Pakistan (SBP) has amended its capital adequacy regulations by significantly lowering the applicable risk weight from 200% to 100% on banks/ DFIs’ investments in the units of Real Estate Investment Trusts (REITs). REITs are companies that raise funding from (the) general public and institutions and deploy these funds through investment in real estate properties.”
“With the aforesaid changes in capital adequacy regulations, banks/DFIs will now be able to increase their investments in REITs without the need to allocate a relatively large amount of capital. This will, in turn, help banks to promote (the) development of (the) real estate sector in the country. The enhanced participation of financial institutions, backed by regulatory initiatives, would also encourage REIT Management Companies to launch new REITs, providing a further boost to the Government’s agenda for (the) development of housing and construction sectors,” the circular further added.
The announcement of the ease in banking regulations by SBP has been welcomed and appreciated by the majority of industry professionals and experts. Here is the link if you want to read the official circular released on the SBP’s latest move to boost investment activities in the country’s real estate sector.
Role of Real Estate Investment Trusts (REITs) in Pakistan
According to the global market practices, the role of the Real Estate Investment Trusts (REITs) in Pakistan is to own and operate as well as financially back the construction and development activities on income-generating real estate.
All the initiatives taken by the State Bank of Pakistan (SBP) have encouraged the majority of commercial banks in the country to participate in activities to strengthen REITs. Another thing that will further boost the activities of REITs in Pakistan is the reduction of applicable risk weight to exactly half of its previous value, according to the amended capital adequacy regulations by the central bank.
The State Bank of Pakistan (SBP) and the Security & Exchange Commission of Pakistan (SECP) are the two key government institutions that have a very important role in the creation and sustenance of REITs in the country.
In order to cater to a wider audience REITs create investment opportunities that are accessible by almost all-scale investors to take advantage of the real estate market. These institutions allow people to invest in portfolios of available real estate assets and units. It works the same way as you invest in stocks and other types of equities.
The Leading RIET Management Company in Pakistan
Arif Habib Dolmen RIET is the first RIET management company in Pakistan. According to the company’s official website, the regulatory framework for REITs was officially unveiled by SECP in 2008, which was subsequently revamped in 2015 keeping in view the evolving market trends and preferences. Here’s the SECP’s official press release on regulations governing the licensing and other matters related to REITs in Pakistan.
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