Pakistan launches South Asia’s first real estate investment trusts
At a time when Indian realtors and investors are struggling to start
A REIT is a financial instrument where the underlying asset is real estate. The rental income from the property assets are distributed by the trust as dividends to the investors or unit holders of the trust.
Interestingly, yields for the Dolmen City REIT's investors in the first year are a percentage point lower than the current yields on Pakistan's government securities (GSec) that are now trading at 9.75%.
REITs notes trade at positive spread across the world. This was based on estimation of rental income from the asset, 90% of which have to be distributed back to investors. But even then, there were few global investors who bit the story -- only 0.6% of HNIs/Institution allocation.
Pakistan has streamlined the process significantly to make it attractive for investors. For example, their REITs attract a withholding tax of 10% (in-line with Mutual fund
Moreover, the regulators there have agreed to concessional tax regime for transfer of an asset into a REIT with significant reduction in stamp duty across the region.
In comparison to India -- despite the recent relaxations on taxability like MAT exemption, tax pass through to REIT - and simplification of structuring, the REIT controlled special purpose vehicles (SPV) are still subject to corporate and dividend distribution tax (
This makes it imperative on the SPV to restructure to reduce the tax blow. According to analysts, while debt infusion at SPVs could improve the yields of the instrument, a simplified structure allowing tax pass through would improve transparency and improve visibility of returns to investors.