Hafiz Huzaifa Anwar (61723)

SFAD
Assignment

Submitted to:

Sir Arsalan Hashmi

1. What is a Real Estate Investment Trust (REIT)? Why are REITs not very
common in Pakistan?
A real estate investment trust (REIT) is a firm that owns and often operates income-generating real estate.
Most REITs specialize in a single real estate sector, devoting all of their time, energy, and capital to that
particular area of the market. The idea of a Real Estate Investment Trust has yet to catch on in Pakistan.
There is currently only one REIT listed on the stock exchange: Arif Habib's Dolmen REIT. REITs were
controlled by 2008 regulations until 2015, when SECP replaced them with 2015 regulations. Even though
the new regulations were thought to be more business-friendly than the 2008 regulations, REIT activity
has been lukewarm; numerous REIT projects have been shelved in the last two years. Only nine entities
applied to register as REIT Management Companies (RMCs) between 2008 and 2015, and only one was
successful.

Q2 Briefly discuss the problems faced by Arif Habib Dolmen REIT Management Limited
(AHDRML) in launching the first REIT in Pakistan.

The REIT Regulations of 2008 were ineffective. The needed minimum fund size was PKR 5 billion,
which was a substantial sum. The real estate property had to be approved by SECP before it could be
included in the REIT Scheme, according to the requirements. This was problematic since prior to the
purchase, public knowledge of high interest in the property was likely to influence negotiating dynamics
and property values. This

Major investment bankers viewed the rule as over-regulation and damaging to the development of REITs
in Pakistan. The regulatory framework failed to attract sufficient interest from property owners, REIT
management, and property management businesses to form REITs in Pakistan due to some of these
legislative and technical difficulties.
 Q3 Discuss the challenges that continue to curtail the expansion of REITs in
Pakistan? Also explain how the Government of Pakistan can facilitate the
development of REITs in future.
The difficulties experienced at the REIT's launch were much more formidable. Transfer taxes on the sale
of a property to a REIT scheme were significant, ranging from 5% to 6% of the property's value. Taxes on
the property would be around PKR 225 million if it was transferred using valuation tables, but they could
be as high as PKR 1 billion if it was transferred using transaction value, making the transaction
impractical. The government of Sindh authorised concessionary tax rates on property transfers to the
REIT to promote the launch of DCR, Pakistan's first REIT Scheme, making the transaction possible.

Q4 Analyse whether the Dolmen City REIT (DCR) offers investors an attractive
investment revenue in the real estate sector of Pakistan.
The Dolmen City REIT scheme intends to pay out at least 90% of its earnings in dividends to its Unit
holders each year.

Dividend Yield on Dolmen City REIT Units is predicted to rise from 9.49 percent in the first year to
22.55 percent in the tenth year (based on 100% occupancy and payout). For the first ten years of
operations, the average dividend yield is estimated to be 15.20 percent. A capital appreciation component
will also be added to the overall return from the REIT instrument. The subject real estate is expected to
grow somewhat in the future.

5% per year increase in value increase in Net Asset Value (NAV) can be realised by selling unit holdings
on the secondary market. In Pakistan, the average rental yield for real estate investment is between 4%
and 6% of the property value. Dolmen City REIT will purchase the property for half of its market value,
resulting in an excellent yield of more than 9% for Unit holders.This historic real estate project's inclusion
in a REIT Scheme will pique investor interest and set a precedent for Rental REIT Schemes.