High-Rise Real Estate Investment – Challenges and Solutions

The high-rise real estate investment landscape in Pakistan has faced significant challenges in recent years. Primary issues are eroding investor confidence: undelivered projects, overpricing and Investment packet size.

Challenges

1. Undelivered Projects
   Investors have lost trust due to numerous undelivered projects. Even the country’s largest real estate marketing companies have failed to complete a single project. This has led to widespread skepticism and hesitation among investors who previously saw high-rise real estate as a secure investment.
2. Overpricing
   High-rise developers often demand exorbitant margins, sometimes exceeding Rs. 10k/sqf over the cost. This inflated pricing creates a significant gap, leaving investors who trusted and invested in these projects stuck in the resale market. Unable to sell their properties at competitive rates, many investors face financial distress.
3. Limited Investment Options
   Investment packet size is large in terms of purchase apartments or office units, which limits the investor base to those who can hold significant amounts for investment. This restricts investors from participating in the high-rise real estate market.

Solutions

1. Regulated Mechanism for Timely Delivery
   Implementing a regulated mechanism that ensures the timely delivery of projects is crucial. This would secure the interests of both investors and developers, rebuilding trust and promoting sustainable growth in the sector.
2. Lowering Margins
   To address the issue of overpricing, developers need to lower their profit margins. By making high-rise real estate more affordable, developers can attract a broader range of investors and ensure a healthier resale market.
3. Fractional Selling (having multiple side issues)
   Introducing the option to sell units in square feet rather than whole apartments or office spaces can significantly broaden the investor base. This approach allows investors to participate in the market, calculate risk, thereby increasing overall investment and liquidity.

Adoption of Real Estate Investment Trusts (REITs)

REITs present a promising solution to the challenges faced by the high-rise real estate sector. In the last year, approximately 3,000 real estate companies were registered in Pakistan, yet there are only 25 REIT Management Companies (RMCs) in last almost 10 years. This highlights the immense potential of RMCs to transform the real estate market.

Solution to Above Challenges with REITs

1. Timely Delivery of Projects
   REITs operate under strict regulatory frameworks that enforce transparency and accountability. This ensures that projects are completed on time, significantly reducing the risk of undelivered projects and restoring investor confidence.
2. Lowering Margins and Improving Affordability
   REITs can help in lowering the cost burden on investors by spreading the investment across multiple investors. This approach reduces the need for developers to charge high margins, as the funding is more secure and distributed, making high-rise real estate more affordable.
3. Flexible Investment Options
   REITs allow for fractional ownership, where investors can buy shares representing a portion of the real estate asset rather than the entire unit. This flexibility opens up the market to investors who might not willing to stuck the capital to purchase whole apartments or offices, thereby broadening the investor base and increasing market liquidity.

Benefits of REIT Management Companies

For developers, REITs offer:

• Access to a broader investor base, providing more substantial and stable funding.
• Enhanced credibility and trust through regulatory compliance.
• Improved liquidity, as properties under REITs are easier to trade.

For investors, REITs provide:

• A regulated and secure investment platform, akin to the security provided by banks.
• Diversification of investment portfolios with potentially higher returns.
• Reduced risk due to professional management and regulatory oversight.

This creates a significant opportunity for real estate businesses that can foresee the near future and adapt accordingly.

NBFC Advisory and Investment Network: Your Strategic Partner

NBFC Advisory and Investment Network stands at the forefront of facilitating the establishment and operation of various financial entities, including REIT Management Companies, Private Equity Funds, Venture Capital Funds, Investor Advisory and Asset Management companies, Modarabas, and Non-Banking Microfinance Companies (NBMFCs). Our services encompass:

1. Establishment of Financial Entities: We specialize in setting up NBFCs, ensuring compliance with regulatory requirements and facilitating smooth operations.
2. Operations Management: Our expert team provides comprehensive operations management services, optimizing performance and ensuring efficient workflows.
3. Investment Networking: We bridge the gap between investors and NBFCs, creating valuable networking opportunities that foster growth and collaboration.

For more insights about us and why we are the preferred choice for NBFCs, read our article on choosing the right consultant. REIT Consultants: Essential Insights for Informed Investments

In conclusion, the adoption of REITs and the support of dedicated financial advisory services can revitalize the high-rise real estate investment sector, restoring investor confidence and driving sustainable growth.

Warm Regards,

Farhan Khan

C: +923214335661

E: farhan.khan@nbfc.pk

NBFC Advisory & Investment Network

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