The State Bank of Pakistan (SBP) has reduced the risk weight of banks/DFIs from 200 percent to 10 percent on their investment in units of Real Estate Investment Trusts (REITs) for 5 years that will help facilitate the development of housing finance and capital markets.
On Wednesday, the SBP took a positive step for the real estate sector 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.
The circular also said, the banks’ investment (in REITs) will now be categorized 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”.
SBP extends banks/DFIs limit to boost real estate investment
According to the SBP, “With the changes in capital adequacy regulations, banks and DFIs will now be able to increase their investments in REITs without the need to allocate relatively large amount of capital.”
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“This will, in turn help banks to promote development of real estate sector in the country. The enhanced participation of financial institutions, backed by regulatory initiatives, would also encourage REIT Management Companies to launch new REITs, providing further boost to the Government’s agenda for development of housing and construction sectors,” it said.
Samir Ahmed, Knightsbridge Capital Group CEO, told the media, “This is a good move since the risk weight for banks’ investment in the real estate sector was very high. Banks will now be able to increase their investments in REITs without allocating relatively large amounts of capital. This move would facilitate investment in REITs and potential launch of new REITs.”
