On the 3rd of December 2022, Shahid Habib of Arif Habib Limited announced to list the Globe Residency REIT (GRR) on the Pakistan Stock Exchange (PSX). In the world of Pakistani real estate, this is historic. This is Pakistan’s first development REIT.
As REIT is a new concept in our real estate investment industry. Landgala.com Pakistan’s premier real estate portal is discussing it in detail for the sake of our real estate stakeholders.
What Is a REIT and how does it works?
Real Estate Investment Trust (REIT) is a mutual fund that focuses on investment in properties and real estate. And derives income from such investments for its unit holders.
Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments without buying, managing, or financing any properties themselves.
A REIT owns different kinds of income-producing real estate, such as shopping malls, hotels, office buildings, apartments, resorts, self-storage facilities, warehouses, and even cell phone towers. Most REITs concentrate on one type of real estate, though some include multiple property types.
rental rEIT
In the case of a Rental REIT, the REIT Management Company (RMC) identifies a project. RMC then raises public money through an Initial public offering. The Company then buys a property and rents it out. The rent is then distributed to the unit holders. (The shareholders of The REIT Scheme are known as unit holders).
Developmental or Hybrid REIT
In the case of a Developmental or Hybrid REIT Scheme, RMC identifies the project. It raises public money through an initial public offering. The company then constructs, and then either sells the project or rents it out. The unitholders get the share from the sale proceeds. Globe Residency REIT (GRR) is Pakistan’s first development REIT.
Globe Residency REIT(GRR): Pakistan’s first Development REIT
Launched in November 2021, the GRR is a real estate project which is building nine apartment complexes within the boundaries of the Naya Nazimabad housing project — an ambitious undertaking by the Javedan corporation to build a “city within a city” in Karachi.
The reason for establishing this REIT is that developers are now looking for better ways to make real estate more liquid and transparent.
Javedan Corporation Limited have offered a total of 14 million units, which make up 10 percent of the total units of the REIT scheme to the general public at a price of Rs10 per unit.
Arif Habib Limited is the lead manager. Habib Bank Limited, Habib Metropolitan Bank Limited, Bank Al Habib Limited, and, Bank Alfalah Limited are bankers to the offer along with Ismail Iqbal Securities and Growth Securities acting as underwriters.
GRR is a closed-ended, developmental REIT scheme with a limited life of 48 months offering investors the opportunity to become an investor in the Globe Residency, an apartment project at Naya Nazimabad.
Arif Habib Dolmen REIT Management Limited is a REIT management company of GRR and Arif Habib Development and Engineering Consultants (PVT.) Ltd is the project manager.
In total, GRR is constructing nine towers. These towers will be ready for possession within the next 3 years. The total number of apartments in the project is 1344. The grey structure is targeted to be completed by September 2023. The REIT fund size is Rs2.8 billion. The total project cost is Rs20 billion.
Why Invest in REITs?
You might consider investing in a REIT for a few key reasons:
1. Get Exposure to Real Estate
Definitely, one of the primary reasons to invest in REITs is the exposure they provide to real estate. Residential, commercial, or retail—without requiring you directly purchase individual properties.
This offers individual investors or smaller institutions the chance to invest in real estate without the significant financial commitment for due diligence or the personal risk that comes with investment in individual properties.
2. Diversify Your Portfolio
REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. These are the characteristics of REIT-based real estate investment.
How have REITs performed in the world in the past?
REITs’ track record of reliable and growing dividends, combined with long-term capital appreciation through stock price increases, has provided investors with attractive total return performance for most periods over the past 45 years compared to the broader stock market as well as bonds and other assets.
Listed REITs are professionally managed, publicly traded companies that manage their businesses with the goal of maximizing shareholder value. That means positioning their properties to attract tenants and earn rental income. And managing their property portfolios and buying and selling of assets to build value throughout long-term real estate cycles.
