KARACHI: After six years of radio silence from over half a dozen companies with a licence to manage real estate investment trusts (REITs), as many as six transactions worth up to Rs38 billion are likely to take place within 2021-22.

Speaking to Dawn in a recent interview, Arif Habib Dolmen REIT Management CEO Muhammad Ejaz said his company will soon launch four REITs in addition to the two schemes that the company announced earlier this month.

REITs collect money from investors and deploy it in real estate projects. They operate like any other company but offer more transparency to investors as trustees control all assets and the entity must list on a stock exchange within three years. Small investors can then take exposure to an otherwise capital-intensive and illiquid real estate market by publicly trading REIT units just like ordinary shares.

Mr Ejaz’s REIT management company – which is a joint venture between Arif Habib Group and Dolmen Group with equal shareholding – created the country’s first REIT that securitised and sold Dolmen Mall Clifton and the adjoining Harbor Front building in a Rs22.2bn transaction back in 2015. The REIT sector remained dormant for the next six years as unfavourable changes in the tax and regulatory regimes discouraged investors, Mr Ejaz said.

Changes made by SBP, FBR and SECP hailed for bringing investors back

“Key changes by the State Bank of Pakistan, Federal Board of Revenue and the Securities and Exchange Commission of Pakistan played an important role in bringing investors back to REITs,” Mr Ejaz said.

With a fund size of Rs3bn, Arif Habib Dolmen REIT Management has recently launched Silk Islamic Development REIT in Surjani Town, a low-income area in the northern part of Karachi. The second scheme, to be launched under the name of Silk World Development REIT in the same area, will have a fund size of Rs5bn.

As for the other four schemes, the CEO said they will have a collective fund size of Rs30bn and be located in more than one city.

Transaction structure

The REIT management company led by Mr Ejaz is one of the five equal shareholders in Silk Islamic Development REIT. Other investors include Yunus Brothers, Arif Habib Group, Liberty Group and Fatima Group.

As its trustee, the Central Depository Company (CDC) is currently holding Rs3bn in an account on behalf of the five shareholders. The REIT management company will use this money to purchase the 60-acre piece of land from a group of sellers led by Silkbank.

According to Mr Ejaz, land sellers will get a partial payment upfront and receive the rest of dues from the proceeds of the project. “The deferred payment arrangement has made the project more viable,” he said.

Noting that the project design details have not been finalised, Mr Ejaz said the scheme will likely have 12,000 two- and three-bed-plus-lounge residential units. “I can’t give you any price range right now. Construction costs are too volatile,” he said, adding that the scheme will start selling flats in 16 to 18 months. Allottees will get possession within four years of the project launch, he added.

“We’re building flats for middle-class families with household incomes ranging from Rs80,000 to Rs250,000… those who stretch themselves and buy a Corolla are middle-class people,” he said when asked what he meant by the middle class.

The second REIT scheme, to be located on an 86-acre piece of land, has only one shareholder: World Group owned by Mehmood Trunkwala. This scheme will have 1,500 villas and an equal number of apartments in addition to 600 low-cost residential units to be sold under the Naya Pakistan Housing Programme.

Both REITs will have to go public within three years. Sponsors will offer at least 25 per cent of their shareholding to the general public through a listing. Alternatively, the existing shareholders can issue new units or shares to raise fresh cash for project needs.

Published in Dawn, July 21st, 2021