Pakistan central bank new REIT regulation 'good move' for real estate investment

Published 03 Jun,2021 via Dawn LAHORE/KARACHI - In what is being seen as a positive development for the real estate sector and capital markets, the State Bank of Pakistan on Wednesday reduced the risk weight of banks/DFIs from 200 per cent to 100pc on their investment in units of Real Estate Investment Trusts (REITs) for five years to facilitate development of housing finance and capital markets.

“In order to provide further support to the development of real estate sector, State Bank has amended its capital adequacy regulations by significantly lowering the applicable risk weight from 200 per cent to 100 per cent on banks and DFIs’ investments in the units of REITs,” said a SBP circular.

Besides the revision in the capital adequacy treatment for banks’ investments in REITs, the circular said, the banks’ investment (in REITs) will now be categorised in the “Banking Book” instead of “Trading Book”. However the central bank added that it “may review this revised treatment after a period of five years based on the banks’ exposure and performance of the REITs sector”.