Future of REIT in the Philippines

by PRIME Philippines Research & Advisory Group  May 7, 2020

It has been more than a decade since the enactment of the Real Estate Investment Trust (REIT) law in the Philippines. However, its initial takeoff was stalled as regulatory concerns about the initial set of implementing rules and regulations (IRR) were raised. With the issuance of the amendments of the REIT IRR January this year, a lot are looking forward to what this could mean for the real estate market and the Philippine economy.

 

A REIT is a stock corporation that owns income-generating real estate, utility, or infrastructure assets. By being listed in the Philippine stock exchange, REIT companies can raise capital, which they can use for property development and other investment opportunities. Through REITs, Filipinos can contribute to real estate growth by investing in the property market without having to physically own property  or raise massive capital.

 

The revised REIT guidelines aimed to address the concerns of stakeholders about the previous IRR so that it can revitalize the interest of real estate players. The key revisions to the IRR include (1) lowering of the minimum public ownership requirement from 40% to 33%, (2) requirement of reinvesting funds raised from REIT to the domestic market through real estate or infrastructure, (3) exempting the transfer of assets in exchange for REIT from Value-Added Tax, (4) removal of escrow requirements, and (5) enhancement of the qualification requirements of REIT fund managers and property managers.

 

Since the issuance of the adjusted rules, a lot of developers started to show interest in participating in REIT. Ayala Land Inc.'s subsidiary, AREIT Inc., is preparing to be the first REIT listing in the market after submitting its application to the Securities and Exchange Commission. Other developers that have expressed their intention of taking part in REIT include DoubleDragon Properties Corp., Megaworld Corp., Robinsons Land Corp., and Century Properties Group, Inc.

 

In Asia, many countries have already established their REIT markets. Relatively younger markets like Malaysia and Thailand were able to be at par with more mature markets like Hong Kong and Singapore. Malaysia had its first listing in 2005 and from its inception to 2019, it recorded a market capitalization CAGR of 40%. For the case of Thailand, which just had its first REIT listing in 2014, a 50.6% CAGR in the total REIT market capitalization from 2014 to 2018 was recorded. By looking at the trends of our neighboring countries, we can have a glimpse of how REITs could turn out for the Philippines. With the Philippines' large population, strong domestic consumption, and stable GDP growth, the country has a lot of potential to catch up with the Asian REIT market. 

 

For the Philippines’ relaunching of REIT to be successful, companies in the real estate industry as well as those in the utilities and infrastructure market should take advantage of this emerging asset class. With the support of the private sector and the public in the local REIT market, healthy competition for the property market is bolstered, which should pave the way for better project and service offerings from developers. On a larger scale, the country’s economy is also expected to benefit from the success of REIT through reinvestments in the domestic market. This should increase investments in infrastructure projects and generate additional jobs.

 

Just as developments of REITs in the country are recently gaining pace, a full blown take off may be side-tracked because of the pandemic. Due to the current market conditions, REIT valuation may be affected. But it is hoped that since the landscape for REIT is finally ready, more developers would realize the multiplier effects and the lowered cost of capital that REITs bring. 

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