Pakistan’s revamped REIT rules yielding results

Pakistan has welcomed three new REITs – a testament to the Securities and Exchange Commission of Pakistan (SECP)’s amending its REIT rules, which is looking to be one of the most consequential reforms yet for the Republic’s real estate capital markets in years, a move that favors Shariah investments.

Enacted at the start of this year, the amended 2022 REIT regulations fast-track listings, reduce regulatory arbitrage between rental and investment-based REITs  as well as improve Shariah governance alignment, among others.

These enhancements build upon years of efforts in formalizing REITs as a capital market asset class, and these measures are paying off. REITs are among the fastest-growing asset class in Pakistan – it nearly doubled in number to 28 from 15 last June. Out of the 28, three were registered this month alone – two rental REITs and one investment-based REIT.

“The REIT sector has demonstrated phenomenal growth during the past few years, reflecting increasing preference being placed in the REIT structure by issuers and investors alike,” said the SECP, noting that REITs hold the potential to “fundamentally reform” Pakistan’s real estate sector.

This development has serious Islamic investment implications because unlike any other markets in the world (except Saudi Arabia and Iran), the REIT industry in Pakistan is dominated by Shariah compliant structures. By 2028, all REITs will be Shariah compliant as per the national directive to phase out non-Islamic structures from the country’s financial system.