Daily Times

World’s largest real estate companies are listed on their respective stock exchanges. Around 25 realty giants that are listed on New York Stock Exchange (NYSE), while more than 120 real estate businesses are present on London Stock Exchange (LSE). Real estate is the third largest industry listed on Shanghai Stock Exchange with 69 onboard companies. Unfortunately, none of Pakistan’s real estate companies is listed on Pakistan Stock Exchange, except Dolmen City Real Estate Investment Trust (REIT).

The market share of these companies is magnanimous. Listed companies are not only able to generate a continuous and substantial flow of revenues because of their greater public standing, but also have got international recognition. These companies have huge investor base for people from any part of the world can purchase their shares.

Surprisingly, in case of Pakistan, the biggest real estate companies are absent on Pakistan Stock Exchange (PSX), despite the fact that all of country’s biggest groups engaged in property business meet the basic market capitalization limit of the stock exchange. This is why Pakistan’s real estate companies are unable to retain plausible international presence.

The registration of real estate companies on stock exchange will not only bring up an upward momentum in realty sector of Pakistan, but also will result in diversification of business portfolio for many investors

Why should these companies get listed on the stock exchange? What possible benefits could be reaped by major investors and minor shareholders by getting registered on PSX? There is huge latent investment based potential in realty sector that needs to be explored in case of Pakistan. The prospect investors, especially the risk averse ones, would be keen in investing in real estate sector as these stocks could offer low volatility in combination with ease of liquidity.

Government, by offering tax incentives, always supports and promotes listing of the companies on stock exchange. After getting listed, a company has to pay 20 per cent less taxes during the first year, while a tax compensation of 10 percent is given for the next two consecutive years. These benefits substantially influence both the earnings and financial standing of the company.

Historically, Pakistan’s realty sector was engaged in investment by means of bilateral transactions that depended upon larger capital size, or through investments in housing schemes that were less regulated. Consequently, the participation of the general public in realty sector has remained limited. However, being a part of PSX’s real estate sector, these companies could yield highest return on investment and the ownership could flow to the small investment holders, thus, expanding the spectrum of the sector.

Getting listed will let the working of real estate companies more transparent. Increased transparency boosts the confidence of investors. Pakistan Stock Exchange analyzes the performance of companies by employing various indexes. If a realty company is doing well, the ranking, credibility and recognition of such company will be elevated.

Liquidity factor is imperative for all business conglomerates, either belonging to real estate or any other sector. After qualifying basic capitalization limits and getting approval by Securities and Exchange Commission of Pakistan, Initial Public Offering (IPO) is held for listing a company. The aim of IPO is to raise funds either for funding a new project or jut for the sake of increasing liquidity for meeting the demands of working capital. In this way, listing opens doors to broaden liquidity.

The indirect interaction with such a large investor base is a huge blessing in itself. Listed companies have greater prospects for partnering with local and international ones. Moreover, with increased public standing of the business, realty sector of Pakistan could attract the best talent to this industry. Relationship with the potential customers and marketers could be strengthened through share ownership schemes.

With tightening monetary policy, interest rate is continuously at rise. If a company wants to pursue business by taking loan, the cost of loan is extremely high in current scenario. The good news is that this money could be raised at cheaper rates by listing the business on stock exchange.

The registration of real estate companies on stock exchange will not only bring up an upward momentum in realty sector of Pakistan, but also will result in diversification of business portfolio for many investors. Further, realty sector is known for lesser volatility and positive returns, so it could substantiate the major downtrends in Pakistan Stock Exchange. The PSX could follow the pattern of New South Wales, Australia, and formulate a separate Property Stock and Business Act to regulate realty industry.

All the high net worth companies engaged in the business of real estate investment consultancy, property development, property management, real estate brokerage, and construction could be encouraged to transform themselves into PXS listed companies.

The writer can be reached sumrarubab@gmail.com