To encourage investment in real estate via Real Estate Investment Trusts (REITs), the SECP developed a new Public-Private Partnership (P3) model for REITs, in addition to entirely overhauling the REIT regulatory structure.
The amendments shifted the regulatory structure away from approval-based issuance and towards disclosure-based issuance, lowering entry barriers for new REITs, making REITs more competitive with unorganised sector-led real estate projects, expediting regulatory approvals, and attracting domestic and foreign investment into the formal real estate sector of the country.
The regulations were finalised following thorough talks with all stakeholders, in order to incorporate revisions that are consistent with domestic market conditions and globally recognised standards.
The redesigned framework establishes a clear distinction between conventional and infrastructure real estate investment trusts, namely Non-PPP REITs (for conventional projects) and PPP REITs (for infrastructure projects) (for P3 infrastructure projects). Under these classifications, REIT Management Companies (RMCs) may explore developing, rental, or hybrid opportunities.
Additionally, various regulatory permissions and submission processes for documents have been streamlined. REIT schemes can engage in real estate directly or indirectly through the acquisition of the company that owns the real estate (the SPV model). The previous need of transferring title to real estate in the name of the REIT Scheme is eliminated under the SPV model.
To expedite and simplify the procedure, the SECP’s approval of real estate is no longer required, as the RMC and trustee are now responsible for reviewing the quality of real estate. Leverage and performance fee ceilings have been removed, and authorisation has been granted to use customer advances for project-related expenses.
Additionally, strategic investors and RMC’s interests in the REIT Scheme have been rationalised by tying them to the initial fund size. Additionally, existing non-PPP REIT schemes may buy additional real estate with the agreement of unitholders.
PPP REITs are permitted to enter into joint ventures with the government on PPP infrastructure projects. It is ensured that the REIT regulations do not conflict with the requirements of the concession agreement, the primary document governing public-private partnership infrastructure projects.
Infrastructure REITs using the P3 model offer a realistic approach for streamlining investments in the country’s ever-growing infrastructure needs.
