Assignment # 3

Case Study
Pakistan’s First Successful Launch of a Real
Estate Investment TrustDolmen City (REIT)—
(Shariah Compliant Rental REIT Scheme)

Student Name: Waqar Mansoor (62790)

Course Name: SFAD
Term: Fall 2020
Instructor: Dr. Arsalan Hashmi
What is real estate investment trust (REIT)? Why are REITs not common
in Pakistan?

A real estate investment trust (REIT) is an organization which organize

manage own real estate in the behalf of investors. This organization is public
limited company. It allows and facilitate common peoples to invest in real who
has very small amount of money and can not invest own his own with this
small amount of money. In this way without buying or managing real estate
properties they get the benefit in form of dividends. Shares of REITs are
initially offered to public through stock exchange. IPO’s are publishing in
newspapers to attracted the public. After IPOs peoples can buy and sell their
shares through stock exchange. This facilitate the common people with low
investment can get benefits from real estate business.

Although REIT’s have global recognition and REIT are common in US it has
61% share of global market but RIETs are not common Pakistani market.
Although this industry is very attractive and possess high rate of returns but
Pakistani real estate market is quite uncertain. People, local goons, and local
political parties capture land and sell it to own worker on very low prices.
Duplicate files and one land selling to two or more peoples. Illegal capture the
land on someone’s is quite easy if owner has not possession or physical
presence. Property giving on rent is also risky is Pakistan. Sometimes Tenant
claims the ownership, or they don’t pay the rents. So, peoples have not trust
on trust estate.

As the REIT are quite new thing to Pakistan So it is for government and
regulatory authorities. Even it is famous in US but every country has it own
issues regarding law, order and regulations. REIT regulations are quite tough
so it’s difficult to manage.

Briefly discuss the problems faced by Arif Habib Dolmen REIT

management limited in launching first REIT.

AHDRML applied for RIET after 2010 regulations. Capital requirement is

reduced but there are still tough requirements exists. To compete the return
by comparing Pakistan investment bond. In development REITs, it is risky to
develop first and then wait for income. There is another challenge, the
developed property has equal value after five years as same as undeveloped
property. Another area is, to purchase any property with the SECP approval.
This let the seller know about the interest and intention of buyer this increase
the price of land and property.

The other challenge is to rent out the Harbor Front Building. First customer
Engro rented out 6 out of 17 floors of building remaining floor took 5 years to
be filled.
The other challenge is the tax issue. If someone moves to REIT from any
other real estate it has to pay 5-6 % tax on the value of property.

As per regulatory requirement, any real estate must be approved by SECP

before it comes to REIT. This is not only problem, the other problem is the
written confirmation and NOC form different local, province and federal
authorities. This is the quite long and hectic process. It starts from required
confirmation from Karachi Development Authority (KDA), and from Sindh
Building Control Authority about whether construction is done as per
requirements. No Objection Certificate (NOC) from environmental protection
agencies and confirmation of the property being encroachment-free were also
required.

3 Discuss the challenges that continuous to curtail the expansion of

REIT in Pakistan? Also explain how the government of Pakistan can
facilitate the development of REIT in Future.

The basic reason is low public awareness regarding RIET. Pakistani peoples
are less literate. They trust physical invest and possession on land otherwise
share and things are strange for them. And REIT is new thing for Pakistan.

Other Reason is the regulatory requirements. The people s and investors

know and interested in the REIT’s can not invest in REITs because of various
reason which are as follows. Regulatory reequipments and law are not only
problem for small share holder but also for the basic investors and for the
management. It is also become challenging to generate above average return
under the RIET regulations. Some regulations are capital requirement, taxes
on transfer of property, long and hectic process of NOC’s from different
government departments. They has to pay bribe to do the right things. SECP
requirement to show the property prior of dealing this cause to seller know the
importance of his property. And who is the actual buyer and what the property
meant for buyer. This increase the price of property. Another reason is the
equity REIT. No borrowing is allowed for RMC. Only equity financing is
allowed.

Facilitation from government

Increase public awareness regarding REIT and encourage RMC’s. Like FBR
is doing the training and awareness programs to student to become active filer
and filing tax online.

This real estate sector is quite in formal. Its structure should be formalized.
Real estate regulatory authority should be properly established and empower.
That regulatory authority must be accountable. Thus, the regulatory authority
formalize the industry structure.
Property tax should Tax transfer tax: Taxes should be eliminated if someone
sell his property to buy RIET shares. This will encourage investors to invest

Single step electronic plate forms should be development to get permission

from all authorities govt authorities. This electronic platform to not only fast the
process but it also makes corruption free. All govt. fee should be online
payment.

Relaxation in REIT regulations to attract the investor and Public private

partnership in REIT will increase the trust of public. All these steps should be
done to facilitate the development of more RIETs

Analyze whether the dolmen city RIET offers investors an attractive

investment avenue in the real estate of Pakistan.

Yes, dolmen city RIET offers an attractive investment avenue. As the Pakistan
is the Islamic state and the majority of population is Muslims. In Islam interest
is prohibited. And profit and loss sharing are good. Doing business and also
sunnah. As the dolmen city REIT is rental REIT. It gives investor a good rate
of return and HALAL income.

In best scenario, return expectation of REIT is estimated around 10% /

annum. The optimistic scenario is 100% rented with 10% annual increment. In
first year 9.49% dividend yield, which will grow about 13.86 in 5 th year and by
tenth year it would be 22.55%.

In the pessimistic scenario, expected return with 85% occupancy and 90%
rent received with 5 % annual growth. Return will be 6.56% 8.36% and
11.51% in first, fifth and in the tenth year.

It does not seem as loss if it compares with government bond having around
10% return. I optimistic condition it’s a good option but in pessimistic scenario
it still a good option to get HALAL constant income. Regulatory requirement
also protects the investor to get dividend. REIT is a good option to invest a
small amount and get benefit of real estate industry.