KARACHI: The State Bank of Pakistan (SBP) on Wednesday announced further easing to banks and development finance institutions to increase investment in real estate investment companies (REITs) to boost the housing sector and construction.
SBP amended its capital adequacy regulations by significantly lowering the risk weight applicable (from 200 to 100%) for banks / DFI investments in units of real estate investment companies (REITs) “in order to provide a additional support for the development of the real estate sector. “
“With the changes in capital adequacy regulations, banks / DFIs will now be able to increase their investments in REITs without needing to allocate relatively large capital,” the SBP said. “This in turn will help the banks to promote the development of the real estate sector in the country. The increased participation of financial institutions, supported by regulatory initiatives, would also encourage REIT management companies to launch new REITs, thus giving new impetus to the government’s agenda for the development of the housing and construction sectors.
REITs are asset management companies that own or finance income producing real estate in various real estate sectors.
These asset management companies raise funds from the public and institutions by floating various types of funds. REITs deploy funds by investing in real estate, thereby enhancing investment in the housing and construction sector to contribute to economic growth and development.
Units of listed REITs are tradable on an exchange and offer a number of advantages to investors. SBP has also relaxed restrictions in existing regulations on seeking financing against shares of listed companies in the group. It will allow investors to raise liquidity to invest more in new business and business opportunities leading to greater economic activity.
SBP has taken a number of regulatory measures to strengthen the participation of banks / DFIs in the housing and construction sectors through their finance and investment activities, in line with various government initiatives for housing sector development. and construction.
SBP had amended some provisions of its existing prudential regulations for investment and commercial banks to encourage increased participation and investment by banks / DFIs in REITs, which enabled banks / DFIs to invest more in REITs. REITs up to 15% of their equity from the previous limit of 10%. In addition, SBP has enabled banks to account for their investments in stocks / shares / bonds / term finance certificates / sukuks issued by REIT management companies to meet their mandatory housing and construction finance targets. Changes to the SBP’s capital adequacy regulations will further encourage banks to contribute to the smooth functioning of the capital market for the real estate sector.