- Spurge of real estate activities started and buyers will get new products and options soon
- REIT model for managing the real estate business is gaining traction albeit very slowly
Interview with Muhammad Ejaz — Chief Executive, Arif Habib Dolmen REIT Management Limited
PAGE: Tell me something about yourself and Arif Habib Dolmen REIT Management Limited, please:
Muhammad Ejaz: I feel privileged to introduce myself as the founding Chief Executive of Arif Habib Dolmen REIT Management Limited, which launched South Asia’s first listed REIT fund in 2015. Prior to joining Arif Habib Group in August 2008, I worked with several financial institutions primarily in the area of Treasury and Corporate/Investment banking. I studied Computer Science at FAST ICS and did my MBA in Banking and Finance from IBA, Karachi where I am a visiting faculty member as well.
Arif Habib Dolmen REIT Management Limited was established as a Non-Banking Finance Company ‘NBFC with the objective to launch REIT Schemes and provide REIT Management Services. It was incorporated as a public limited (non-listed) company in 2009. The combined experience of its Management and leadership from the Sponsors and Board of Directors provides a clear distinction to the company. It aspires to develop the REIT industry in Pakistan with multiple projects in the pipeline. The company is a 50:50 Joint Venture between Arif Habib Group and Dolmen Group. The joint ownership provides financial and operational synergies to conduct effective REIT Management services.
PAGE: How would you comment on the REIT management business in Pakistan?
Muhammad Ejaz: REITs were introduced in Pakistan with the objective of:
1. Allowing small savers to invest in real estate assets
2. Bringing a new asset class to the capital market and
3. Formalizing the real estate business, which is overwhelmingly dominated by the informal sector.
Pakistan became the first South Asian country to introduce listed REIT in 2015. India joined the league much later in 2019. REIT model for managing the real estate business is gaining traction albeit very slowly. There are two main reasons for this slow progress:
1. Lack of documentation in the sector has bred a business culture that will only transform gradually
2. Relative tax disadvantage especially for small and medium scale developers
SECP is playing a proactive role and is in constant contact with market participants to amend the regulations to make these more conducive and business friendly. It is interesting to note that FBR wants to document the economy in order to broaden the tax base and increase tax collection but has created a tax regime that is counterproductive to its own agenda. Tax regime was equitable till June 2015. As soon as the first REIT fund got launched, tax stipulations were adversely amended creating a disincentive for REITs. Tax regime must be amended to its original form as it was till June 2015. Till then small and medium scale developers would not be able to undertake their business under the REIT structure. Only mega projects would be able to afford REIT structures limiting their effectiveness.
PAGE: Your views on the real estate and construction sector during the current fiscal year:
Muhammad Ejaz: The government has rightly focused on the real estate development sector as a source to kick-start economic activities and generate employment opportunities. To put a mega sector, like real estate development, into motion is a mammoth job that demands grit, creativity, and an unimaginably complex coordination between several regulators, authorities and markets. We are seeing appreciable development on several fronts: establishment of NAPHDA, improvement in foreclosure law, fixed tax regime for builders and developers, availability of mortgage finance especially for the low-cost segment are some of the major initiatives. This has led to increased supply as can be gauged by increased consumption of steel and cement and the number of new projects being announced all over the country. We believe this activity will enhance several fold post June 2021 when further operational wrinkles are straightened out. Management of supply chain of raw material and availability of quality workers will be a big challenge for participants going forward.
PAGE: How could customers be assisted in end-to-end management of real estate projects?
Muhammad Ejaz: We bifurcate our customers into two categories: 1) End-buyers of real estate units and 2) Builders and Developers. End buyers need authentic information to ensure that they get what they actually want in terms of clear title of the unit that they buy, proper documentation, price and quality etc. and management of properties post acquisition. For this purpose the government needs to put in place a proper regulatory regime for real estate agents and advisors. This area will come under increased focus as the government introduces Real Estate Regulatory Authority (RERA) in all provinces. Country’s compliance to FATF prescriptions will also bring this area into focus.
For builders and developers the requirement for service is more extensive as capital commitment is much larger. Real estate development is not only a capital intensive business but also needs strong management capacity for proper execution. We believe our entrepreneurs deserve appreciation for carrying out the business without the requisite tools and infrastructure. Since we have established the REIT Management Company, we are providing our customers with a host of services necessary to undertake their business more professionally and manage their risks more effectively. These include: Research to identify “Highest and Best” use of the property/site, product design, pricing, payment plans, Sales and Marketing strategy, financial plan and designing financial facilities both for the developer and the end user. We also provide project management services to our customers.
PAGE: What do you anticipate about the real estate in 2021?
Muhammad Ejaz: Several initiatives, taken both by the private sector participants and the government, are likely to mature in the coming couple of months. Post Ramzan we expect a splurge of activities in the sector. In Karachi alone, we estimate that there are more than 250 proposals pending at different stages of approvals. Buyers will get new products and options. Similarly, we expect more innovative financial solutions in the market. As they say: bad decisions are often made in good times. We all need to be more thorough and careful in our analysis and decision making and more diligent in execution.