Karachi: The State Bank of Pakistan (SBP) has relaxed the capital adequacy regulations for banks and Development Finance Institutes (DFI) by reducing the applicable risk weight from 200% to 100% on investments in Real Estate Investment Trusts (REITs) units, reported a news source.
Reportedly, the relaxation has been introduced for a 5-year duration and is expected to increase banks and financial institutes investment in housing and development schemes. After the reduced risk weight values, banks will be able to invest more in REITs without the need to pledge more capital, which will give a boost to the real estate development sector.
The circular released by SBP further mentions that the investment by the banks and financial institutions in REIT will now be placed in ‘Banking Book’ rather than in ‘Trading Book’ – extending further security to the investment. The regime can be reviewed after five years as per the ‘banks’ exposure and performance of the REITs sector’.
Moreover, the document also proposes that REITs will be allowed to float additional properties in the market for banks to invest in, which will enhance housing availability, as the government envisions.
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