State Bank of Pakistan Supports Investment In Real Estate
The state bank of Pakistan supports investment in real estate and development projects. As the these two are resulting in an enormous profit.
According to SBP notification, to further assist the investment in the real estate industry, the State Bank of Pakistan has changed its financial stability standards by significantly lowering the effective risk weight on banks and DFIs’ investments in REIT units from 200 percent to 100 percent.
The notification explained that the bank would record ‘the revision in the capital sufficiency investments of banks’ in the banking book instead of “trading Book.” however, it may review this amended treatment after five years based on the banks’ exposure and performance of the REITs sector.
Banks will now be able to raise their investments in real estate without having to devote very big amounts of capital. This will help the banks to support investment in real estate. To encourage the engagement of financial institutions would develop the housing and construction sectors.
This is a smart approach, given the huge risk associated with banks’ real estate investments. Banks will now be able to raise their REIT investments without having to invest a large amount of capital. This move would make it easier to invest in REITs and maybe launch new REITs.
The State Bank of Pakistan had recently changed aspects of its existing prudential rules to encourage further participation of banks in REITs, allowing them to invest up to 15% of their equity in REITs, up from the previous maximum of 10%.
Furthermore, the SBP has enabled banks to use their investments in REIT management companies’ shares, units, bonds, TFCs, and Sukuks to fulfil their required targets for housing and construction finance.
With the government focusing on growing the economy by supporting construction and housing, REIT is one official, regulated way to support the investment real estate sector, which is mostly unregulated. We don’t see much development in REITs because of taxes.