Strategies to Encourage Both Domestic and Foreign Investors to Participate

in Pakistan’s REIT Market

Submitted By Danish Ali

1161-BH-GEOG-20

Submitted To
Dr. Shahid Kareem

Department of Geography
Government College University Lahore
Introduction
Land and any permanent modifications, including homes and structures, as well as natural
resources like minerals and water make up a physical asset class known as real estate. It consists
of land used for agriculture, industry, sales, and residential as well as commercial uses. A variety
of income sources are available from real estate investments, including capital gains, income
from rentals, and sometimes even tax advantages (Kennon, 2022). Real Estate Investment Trusts
(REITs) are a common real estate investment entity. Income-producing real estate across a
variety of property industries is owned, managed, or financed by REITs (NAREIT, n.d.).
Without having to take on the ownership or management of properties themselves, they give
individual investors access to broad portfolios of real estate assets. Commercial buildings, retail
centers, residential complexes, hotels, and industrial facilities are among the properties that
REITs generally invest in. Investors can benefit from REITs in a number of ways. Firstly, they
offer liquidity since, like stocks, shares of publicly traded REITs can be bought and sold on stock
exchanges compared to direct real estate investments, which may be not as liquid, this liquidity
makes it easy for investors to enter and leave their positions. Second, compared to investing in a
single property, REITs provide the benefits of diversification by distributing investments over a
range of property types and geographical areas, thereby lowering risk. Furthermore, REITs are
desirable for income investors since they are mandated by law to pay dividends to shareholders
in the amount of a sizable portion of their profits. REITs have certain benefits when it comes to
taxes. If they distribute at least 90% of their taxable profits as profits to shareholders, they are
free from corporate income tax (NAREIT, n.d.). since of this structure, investors can receive
larger returns from REITs since they are able to avoid double taxation at the corporate and
shareholder levels. REIT profits are subject to individual tax rates for shareholders, which may
differ based on the jurisdiction and the investor's tax circumstances
there are the several varieties of Real Estate Investment Trusts (REITs), such as equity REITs,
hybrid REITs, and mortgage REITs (mREITs). While mREITs invest in real estate debt, such as
mortgages and mortgage-backed securities, equity REITs generally own and manage income-
producing real estate properties.

Pakistan's real estate market has great investment potential and presents profitable chances for
both foreign and local investors. Without actually owning any real estate, investors can still
engage in the real estate market through Real Estate Investment Trusts (REITs), which offer a
regulated and organized platform. Nevertheless, the Pakistani REIT market has a difficult time
drawing in investors despite the possible advantages. Khan (2019) reports that compared to other
economies, Pakistan's REIT industry is still in its infancy, with little investor engagement and
market capitalization.
REITs are governed in Pakistan by the Securities and Exchange Commission of Pakistan
(SECP), which also offers guidelines for their creation, running, and administration. Considering
the existence of this regulatory structure, obstacles to the expansion of the REIT sector include
low investor awareness, a narrow range of REIT offers, worries about liquidity, and tax
implications (SECP, 2020).
It's critical to comprehend the current state of the Pakistan's REIT industry before pursuing any
strategies:

REIT Pakistan Market

In comparison to other nations, the REIT industry in Pakistan is still in its early stages of
development. REITs are governed in Pakistan by the Securities and Exchange Commission of
Pakistan (SECP). In order to protect investors and maintain the integrity of the market, the
regulatory framework offers standards for the creation, running, and administration of REITs. A
few of the major obstacles that Pakistan's REIT industry is experiencing include investor
ignorance, a narrow selection of REITs, worries about liquidity, and tax implications.

Globally, real estate investment trusts, or REITs, have become a well-liked financial instrument
because they give investors exposure to real estate assets without requiring them to own actual
real estate. As of my latest update in January 2022, real estate investment trusts (REITs) have
achieved significance in a number of nations, including the United States, Australia, and
Singapore; but, their position in Pakistan's financial environment has been restricted. Regulators,
politicians, and investors have been interested in and talking about the possibility of introducing
REITs into the Pakistani market.
Pakistan has a substantial real estate industry that makes a major economic contribution to the
nation. Unfortunately, small investors may find it more difficult to access traditional real estate
investing options due to their frequently high financial and experience requirements. This
accessibility disparity has sparked discussions about the possible advantages of establishing
REITs in Pakistan. Real estate investment trusts (REITs) are publicly listed businesses that own,
manage, or finance real estate that generates revenue in a variety of markets, including
residential, commercial, industrial, and hospitality. Investors in real estate investment trusts
(REITs) might benefit from liquidity, possible gains from property appreciation, and exposure to
a diverse portfolio of real estate assets.

The capacity of REITs to democratize real estate investing is one of its main benefits. REITs are
able to purchase high-value properties that may otherwise be beyond of reach for individual
investors by combining the finances of several investors. The larger objectives of financial
inclusion and wealth distribution are in line with this democratization of access to real estate
assets.
Additionally, investors in REITs have the opportunity to receive dividend payments on a regular
basis. Due to legal requirements, REITs must provide shareholders a sizable amount of their
taxable revenue, which frequently results in dividend yields that are enticing. In low-interest-rate
circumstances, REITs may be a reliable source of cash flow for income-oriented investors.
In terms of regulations, the establishment of a thorough legal and regulatory framework would
be necessary before REITs could be introduced in Pakistan. A number of issues would need to be
covered by this framework, including as the governance, taxation, reporting requirements, REIT
structure, and investor protection measures. In order to guarantee openness, liquidity, and
investor trust in the market, listing standards for REITs would also need to be established by
regulatory bodies.
The economy as a whole stands to gain from REITs in addition to individual investors. REITs
have the potential to boost economic growth, generate employment opportunities, and support
infrastructure development by directing investments towards the real estate industry.
Furthermore, by providing funding for upgrades and repairs, REITs may be extremely helpful in
bringing distressed or underutilized buildings back to life.
Despite the possible benefits, there can be obstacles in the way of REIT implementation in
Pakistan. These may include opposition from conventional real estate players, worries about
market turbulence, and the requirement for investor education understanding the special traits
and risk-return profiles of REITs.

To sum up, although the Pakistani real estate market has not yet completely embraced REITs, the
idea has potential to be a tool for increasing investment options, advancing financial inclusion,
and spurring economic growth. The introduction of REITs might significantly boost Pakistan's
real estate industry and overall economy with careful planning, cooperation between public and
private partners, and a supportive legal framework.

Strategies to Encourage Participate in REIT Market in Pakistan

 1. Financial Initiatives
The growth of Pakistan's REIT industry is greatly supported by financial incentives. To
encourage the creation of new REITs and provide incentives for property owners to convert their
properties into REITs, government support programs and seed money are among the proposed
approaches. Furthermore, development projects and real estate purchases may be supported by
debt financing facilities, and market liquidity can be increased by liquidity enhancement
strategies including trading platforms and market-making schemes. Programs for educating
investors are crucial to raising knowledge and comprehension of REITs and enabling them to
make wise decisions.
For Pakistan's REIT sector to expand quickly, financial incentives and initial funding must be
made available. To assist in the formation of new REITs and stimulate market activity,
governments, development finance organizations, or private investors may offer initial funding.
Property owners may be encouraged to convert the properties they own into REITs by
government support schemes like tax credits, grants, or subsidies, which may provide them with
financial advantages or favorable regulations.

Debt financing facilities can give REITs extra money for operating capital requirements,
development projects, and property purchases. Mortgages as well as loans, and credit lines are
just a few of the customized financing options that specialized financial institutions, including
development banks, commercial banks, or non-bank lenders, may provide to real estate
investment trusts. REITs can diversify risk, increase profits, and increase the size of their
investment portfolio by utilizing debt financing.

Enhancing market liquidity and investor trust in Pakistan's REIT market requires the
implementation of liquidity augmentation strategies. Market-making systems have the potential
to stabilize trade and reduce bid-ask spreads. These schemes involve designated market makers
providing liquidity by quoting bid and ask prices for REIT units. REIT unit secondary market
trading can be facilitated by specialized trading platforms, including electronic exchanges or
alternative trading systems, which improves price discovery and market efficiency.

The importance of investor education programs cannot be overstated in terms of raising

institutional and retail investors' knowledge and comprehension of REITs. Investment strategies,
risk management tactics, and REIT basics may all be learned through workshops, seminars, and
training resources. Websites, blogs, and videos are examples of online resources that may
enhance traditional educational channels by expanding their audience and providing engaging,
interactive learning opportunities.
2. Market Development and Promotion
In order to find investment possibilities and draw investors to Pakistan's REIT sector, market
research and analysis are essential. Roadshows, investor conferences, and marketing campaigns
are a few examples of promotional events that may highlight Pakistan's REIT market potential
and encourage investor participation. Foreign investors are drawn to markets with more
credibility when listing criteria are in line with international norms. Case studies of effective
market growth tactics used in different countries.
The complex dynamics of Pakistan's real estate market, including sector-specific trends, supply-
demand imbalances, and investment possibilities, are better understood via market research and
analysis. Investors may make well-informed investment plans and uncover appealing investment
possibilities by examining market data, economic indicators, and demographic trends. Reports on
market research, industry studies, and expert analysis can offer important insights into growth
prospects, investment risks, and market fundamentals.
In order to draw investors to Pakistan's REIT industry and increase public knowledge of REIT
investments, promotional measures are essential. Roadshows, investor conferences, and seminars
provide REIT sponsors, managers, and trustees a chance to meet with prospective investors, talk
about market trends, and present investment possibilities. Advertising, brochures, and social
media promotions are examples of marketing initiatives that may reach a larger audience and
spark interest in real estate investment trusts (REITs).
To improve market credibility and draw in foreign investors, Pakistan's REIT market must have
listing requirements that are in line with international norms. The standards of transparency,
corporate governance, and eligibility that REITs must meet in order to be eligible for a stock
exchange listing are governed by listing requirements. Pakistan may attract foreign money and
expertise by securing investor confidence in its REIT market by ensuring that listing standards
are in line with international best practices.
3. Institutional Support and Collaboration
The growth of the REIT market in Pakistan is contingent upon several factors, including industry
collaboration, international cooperation, regulatory coordination, and government backing.
Market expansion may be accelerated by strong government support expressed through policy
endorsements, regulatory changes, public-private partnerships, and incentive schemes. To
provide a supportive regulatory environment, regulatory cooperation between Pakistan Stock
Exchange (PSX), State Bank of Pakistan (SBP), and SECP is essential. REIT market
development is aided by industry collaboration between financial institutions, asset managers,
and real estate developers. Exchange of knowledge is facilitated and best practices in REIT
market growth are promoted through international collaboration.
In order to create a conducive atmosphere for the development of the REIT market in Pakistan,
government assistance is essential. Public-private partnerships, legislative changes, and policy
support may all increase market activity, draw in capital investments, and promote the expansion
of a business. The government can unleash the full potential of the REIT sector by showcasing
its political will and commitment to market growth. This would help to build trust among
investors and stakeholders.
Establishing a favorable regulatory environment in Pakistan for REITs requires regulatory
cooperation between SECP, SBP, and PSX. These regulatory agencies regulate different facets
of REIT operations, such as registration, compliance, and market supervision, in a
complimentary manner. SECP, SBP, and PSX may advance financial stability, investor
protection, and market efficiency by collaborating and coordinating rules.
In order to support the growth of the REIT market in Pakistan, real estate developers, asset
managers, and financial institutions must work together. There are many other ways to
collaborate, such as through industry groups, joint ventures, and strategic partnerships. Industry
participants may solve shared difficulties, grasp opportunities, and spur innovation in the REIT
sector by combining their resources, knowledge, and networks.

Exchange of knowledge is facilitated and best practices in REIT market growth are promoted
through international collaboration. Pakistan may obtain access to international capital markets,
benchmark against international norms, and benefit from global experiences by forming ties with
established REIT markets and taking part in international conferences. Additionally, Pakistan's
reputation and visibility as a desirable location for REIT investments may be improved through
international cooperation.
 4. Flexible Investment Structures
Introduce adaptable investment structures that enable investors to participate in several sub-
REITs that are specialized in various real estate markets or areas, such as umbrella REITs. This
improves diversity and accommodates different investor tastes.
5. Environmental, Social, and Governance (ESG) Integration
To encourage sustainable and socially conscious investing, include ESG standards into REIT
rules and reporting requirements. This draws in socially concerned investors and is in line with
worldwide trends towards the inclusion of ESG factors into investing decisions.
6. Digitalization and block chain
In Pakistan's REIT industry, digitalization and block chain technologies provide substantial
prospects to improve security, efficiency, and transparency. Stakeholders may save operating
costs, enhance data integrity, and expedite procedures by utilizing distributed ledger technology
and digital platforms. Here is a thorough examination of some possible uses for them. Property
Tokenization:
Real estate assets may be tokenized by splitting them up into digital tokens that stand in for
ownership rights thanks to digitalization and block chain technology. Investors can buy and sell
fractional ownership interests in real estate assets since each token might represent a portion of a
property.
Property tokenization can democratize real estate investing in Pakistan's REIT industry by
removing entry barriers and making high-value properties accessible to smaller investors. On
block chain-based systems, investors may purchase and sell digital tokens, enabling peer-to-peer
transactions. Property Transactions using Smart Contracts: Smart contracts are block chain-
encoded, self-executing agreements with predetermined terms and circumstances. Smart
contracts have the potential to automate many property transactions in the real estate domain,
such as revenue distribution, leasing agreements, and purchase agreements.
Stakeholders in Pakistan's REIT market can expedite the process of purchasing, managing, and
selling real estate assets by putting smart contracts into place. When certain circumstances are
met, smart contracts may carry out transactions automatically, cutting down on paperwork,
transaction costs, and the need for middlemen.
Block chain technology records all transactions and changes in asset ownership in an open,
transparent, and impenetrable ledger. Data integrity and transparency are ensured by
cryptographically securing each transaction and having network members verify it.
Block chain-based asset management systems can offer real-time visibility into property
ownership, rental revenue, costs, and value measures in Pakistan's REIT industry. The
availability of accessible and auditable asset performance records to investors boosts their faith
and confidence in REIT investments.
A verified record of asset ownership and transaction history is provided by block chain
technology, which generates an immutable audit trail of all transactions and data modifications.
As a result, there is less chance of fraud, manipulation, and illegal changes to financial
documents.
Block chain-based audit trails can make regulatory compliance, internal control, and external
audit procedures easier in Pakistan's REIT industry. In order to improve market integrity and
investor protection, regulators, auditors, and investors can confirm the veracity and correctness
of financial statements and disclosures.
Crowd funding platforms can use tokenized offers to attract funds for real estate projects thanks
to digitalization and block chain technology. In return for digital tokens that reflect ownership or
revenue rights in certain properties or REITs, investors can provide capital.
Crowd funding platforms based on block chain technology have the potential to enhance capital
formation for real estate development projects and REITs in Pakistan. This can lead to a greater
number of investors and a more accessible investment landscape. Issuers may reduce
administrative costs and time-to-market by automating investor onboarding, compliance checks,
and dividend payouts by utilizing block chain technology.
Large amounts of real estate data, such as metrics measuring the performance of individual
properties, market trends, and investor behavior, can now be collected, stored, and analyzed
thanks to digitalization. Stakeholders may gain actionable insights to improve portfolio
management and investment choices by utilizing data analytics and machine learning algorithms.

Platforms for digitization and data analytics can offer real-time dashboards, performance
analytics, and predictive models to help with investment decision-making in Pakistan's REIT
industry. With the ability to obtain detailed information on asset performance, market dynamics,
and risk factors, investors may reduce portfolio risk and make well-informed investment
decisions.
By automating data collecting, verification, and reporting operations, block chain technology can
simplify regulatory compliance and reporting procedures. In order to minimize human labor and
the chance of mistakes or omissions, smart contracts can automatically create compliance reports
and enforce regulatory standards. Asset managers and REITs in Pakistan can comply with tax
laws, financial reporting requirements, and SECP rules by using block chain-based regulatory
compliance solutions. Regulators' ability to monitor and supervise the market is improved by
their access to real-time data on investor transactions and REIT operations.
Block chain technology makes cross-border investing easier by allowing money and digital
assets to move seamlessly across countries. Investors can use block chain-based platforms for
asset tokenization, trading, and settlement to engage in Pakistan's REIT market from anywhere in
the globe. Block chain-based cross-border investment platforms have the potential to draw
international investment to Pakistan's REIT industry, expanding the market's funding sources and
promoting growth. Block chain technology facilitates global integration and collaboration in the
real estate industry by lowering obstacles to foreign investment.
7. Regulatory Sandbox
Innovative goods, services, or business concepts can be evaluated in a controlled setting with
lenient regulations in a regulatory sandbox. Without implementing stringent regulations right
once, it enables regulatory bodies to monitor and evaluate the effects of novel technology or
corporate practices in actual environments. The Pakistani REIT market can gain from a
regulatory sandbox in the following ways: Encouraging Innovation: REIT sponsors, managers,
and technology suppliers may test out creative ideas and business models in a secure
environment without worrying about facing repercussions from the authorities thanks to the
regulatory sandbox. It promotes innovation and risk-taking by encouraging entrepreneurship,
creativity, and experimentation in the REIT market.

The regulatory sandbox is available to sponsors and managers of REITs so they can test novel
services, goods, or investment approaches that might not entirely abide by the law as it is. To
evaluate the viability and efficacy of digital asset tokenization systems, block chain-based
property registries, or AI-driven investing algorithms, for instance, they can test them in a
controlled setting. Flexibility with Regard to Regulatory Compliance: Within the sandbox,
regulators might loosen some regulations to make room for novel company concepts or
technological advancements that might not fit neatly into the current regulatory frameworks. As
a result, market players can investigate fresh prospects while preserving investor safety and the
integrity of the system.

Before a product or service is fully implemented, the regulatory sandbox offers a chance to
confirm its feasibility and market demand. Through the observation of consumer input, market
reactions, and performance data, stakeholders may evaluate the innovations' scalability and
commercial viability. Before novel techniques or technologies become widely used, authorities
can keep an eye on and take steps to minimize any possible dangers by using the sandbox
environment. Regulators can avert negative outcomes for investors or the financial system by
implementing suitable protections, evaluating risks, and developing exit plans. Regulators,
business people, and technology suppliers are encouraged to work together and exchange
information through the regulatory sandbox. By sharing knowledge, best practices, and
takeaways from their sandbox experiences, stakeholders may promote sector growth and
innovative regulations.
The sandbox can provide valuable feedback and insights that can guide the iterative creation of
rules and regulatory frameworks that oversee the REIT market. Regulators are able to recognize
regulatory voids, uncertainties, or inadequacies and put forth reform suggestions that would
enhance market effectiveness, safeguard investors, and ensure financial stability.
Encouraging Investor Confidence: The sandbox encourages confidence in investors and market
players by showcasing regulatory openness to innovation and experimentation. The proactive
approach taken by authorities to accommodate technology changes and promote a robust and
dynamic REIT sector provides investors with reassurance. A regulatory sandbox can be
extremely important for stimulating innovation, improving market efficiency, and fostering
investor trust in Pakistan's REIT sector.
8. Stakeholder Engagement
The term "stakeholder engagement" describes the act of involving and working with people,
groups, and establishments who have a stake in or influence on the REIT market. Various
stakeholders, such as REIT sponsors, managers, investors, regulators, legislators, industry
groups, and the general public, may communicate, work together, and develop consensus
through effective stakeholder engagement. Here are some additional reasons why and ways to
clarify stakeholder engagement:
Establishing open communication and information exchange among market actors, stakeholder
engagement fosters trust and transparency. Regulators and industry participants may establish
credibility and promote trust in the REIT market by including stakeholders in decision-making
procedures.

By interacting with stakeholders, regulators may better understand market possibilities,

requirements, and constraints. This helps them create laws that are sensitive to investor
preferences and industry dynamics. Stakeholders can give insightful commentary on difficulties
related to regulatory compliance as well as workable solutions. Promoting Industry Collaboration
and Market Development: Promoting industry collaboration and market development efforts
need stakeholder participation. Regulators can encourage the expansion and maturity of the
REIT market by utilizing the knowledge, resources, and networks of sponsors, managers, and
investors in REITs through their involvement in market development initiatives.
Encouraging investor protection involves working with consumer organizations, investor
advocacy groups, and investor education programs to increase knowledge of the dangers,
obligations, and rights of investors in real estate investment trusts (REITs). Stakeholders may
improve investor protection by providing information and expertise to investors.
Knowledge sharing, innovation, and the sharing of best practices are facilitated via interacting
with technology suppliers, educational institutions, and business professionals. The use of
cutting-edge technology and business models in the REIT sector may be encouraged by
regulators working with stakeholders on research projects, pilot programs, and industry
conferences. Taking Social and Environmental Aspects into Account: Incorporating social and
environmental aspects into REIT market operations is made possible through stakeholder
involvement. Stakeholders may guarantee that REIT investments contribute to favorable social
and environmental results and are in line with sustainable development goals by conferring with
community leaders, environmental groups, and social impact investors.

Active participants have the power to push for changes in regulations, market reforms, and
policy that will support the long-term viability and competitiveness of the REIT industry.
Through enlisting the aid of professional associations, industrial associations, and advocacy
groups, stakeholders may sway policymakers and mold the regulatory landscape.
 9. Investor Advisory Panels
In Pakistan's REIT sector, investor trust, openness, and communication between investors and
market participants are all greatly enhanced via Investor Advisory Panels. These panels give a
variety of viewpoints and insights on matters pertaining to investors, including investing
preferences and concerns. Typically, they are composed of financial advisers, experienced
investors, and representatives from investor advocacy groups. Investor Advisory Panels give
investors a forum to voice their thoughts, exchange experiences, and communicate expectations
about REIT market performance, regulatory changes, and investment possibilities through
frequent meetings, consultations, and feedback sessions. In order to assist regulators and industry
participants better understand and serve the requirements of investors, panel members provide
insightful comments on proposed regulatory reforms, market initiatives, and investor education
programs. Regulators may improve market integrity, protect investors, and create an atmosphere
that is more investor-friendly and favorable to long-term investment development by working
with Investor Advisory Panels to inform decision-making processes. Furthermore, by providing
investors with the information, tools, and assistance they need to navigate the complexity of the
market, make wise investment decisions, and reach their financial objectives, these panels are
essential. Overall, Investor Advisory Panels help investors and market players collaborate, fortify
bonds, and generate trust—all of which eventually propel Pakistan's REIT industry's growth and
maturity.

Conclusion

As a result, coordinated initiatives across institutional, financial, market development, and

regulatory aspects are needed to fully realize Pakistan's REIT industry potential. To draw both
local and foreign investors, it is imperative to perform market research, simplify rules, offer
financial incentives, and promote institutional collaboration. Pakistan may stimulate economic
growth and development by positioning itself as a desirable location for real estate investment
through REITs and putting these plans into practice.
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