PH losing out in REIT race amid strict rules

Six years after an enabling law for real estate investment trust (REIT) was passed, the Philippines is still struggling to strike the right balance to get this new asset class off the ground by offering sweeteners to property developers without jeopardizing the government’s fiscal stability.

During the 4th Asia Pacific Real Estate Investment Summit Thursday, private sector proponents noted how the Philippines was losing out in the REIT race. They said it’s still the same two regulatory restrictions that killed the REIT industry at infancy: the required minimum public ownership of REIT at an initial 40 percent before being raised to 67 percent and the imposition of value added tax on the initial asset transfer.

“We might miss the boat in terms of REIT,” said Philippine Stock Exchange (PSE) chief operating officer Roel Refran.

REIT gives investors the option to invest directly in finished products that are already earning money—such as residential and office units, hotels or shopping malls or even infrastructure ventures like toll roads and power plants. The REIT Law of 2009 requires the distribution of 90 percent of income annually.

The farther the Philippines veers away from REIT norms across the globe, the more difficult it would be for this new asset class to attract investors, Refran said.

Francis Lim, former PSE president and now the managing partner of Accralaw, said Thailand had come up with a REIT legislation only in 2012 and yet was able to launch this new asset class ahead of the Philippines.  He said getting this product off the ground may require some form of “sacrifice” from the government.

Peter Verwer, chief executive of the Asia Pacific Real Estate Association (APREA), said governments would naturally be reluctant to let go of some of their tax takes. He noted, however, every single country that has launched the REIT was able to drive growth, create jobs and broaden its tax base.