REIT & ITS IMPLEMENTATION IN PAKISTAN

Abstract

A Real Estate Investment Trust (REIT) is a real estate company that offers common shares to the public. In this way, a REIT stock is similar to any other stocks that represents ownership in an operating business and are tradable on stock exchange. REIT uses investors' money to purchase and operate income properties, so its major function is managing groups of income-producing properties and it must distribute almost 90% of its profits as dividend in order to keep its status as an REIT. By doing this, REITs avoid paying corporate income tax, A regular corporation makes a profit and pays taxes on the entire profits, and then decides how to allocate its after-tax profits between dividends and reinvestment; but a REIT simply distributes all or almost all of its profits and gets to skip the taxation. The major advantage of REIT implementation is that it allows the small investors to invest in real estate. So real beneficiary of this scheme would be small investors and general public. The REITs are divided into three major categories and that are of Equity REITs, Mortgage REIT and the Hybrid REIT. This Hybrid REIT is the combination of both equity and mortgage REITs. Fewer than 10% of REITs fall into Mortgage REIT class, as they generate their revenues in the form of Interest that they earn on mortgage loans and secured by real estate. Equity REITs tend to specialize in owning certain building types such as apartments, regional malls, and office buildings. Some are diversified and some are specialized Most of investors are interested in owing them because they've shown that they have the potential to deliver competitive long-term returns andtheir revenue is in the form of Rents. NUST Institute of Management Sciences 1 Real Estate Investment Trusts (REITs) entered the financial markets as closed-end publicly-traded stock companies based in 1960 within specific structural and dispositional requirements. The REIT corporation allows the investors to hold portfolios of highly illiquid real estate assets while simultaneously enjoying traditional stock market liquidity and marketability advantages. After converting to REIT, the corporation will become free of future Capital Gains Tax (CGT) and corporation tax provided that it distributes the majority of its rental income and a proportion of future Capital Gain on property assets to its shareholders. Shareholders will therefore benefit from increased dividend payouts.