The new framework that eased the restrictions on real estate investment trusts (REITs) is seen keeping the real estate and infrastructure sectors in the country buoyant as it democratizes investing in these segments, property market veterans said.
“The REIT platform will be a fantastic opportunity for the public to participate in the massive growth of the property industry,” Leechiu Property Consultants president David Leechiu said, adding that the hotel, mall, office and infra sectors were the biggest beneficiaries from this development.
Aside from traditional asset classes such as office, retail, warehouses and hotels, property consulting firm Colliers Philippines believes that other segments of the economy would also benefit from the launch of REITs in the Philippines.
“With the government being more active in attracting private sector investment, property firms should also explore possible public-private partnership (PPP) projects that cover hospitals, schools, and toll roads,” Colliers said in a research note.
A REIT gives investors the option to invest directly in the finished products that are already earning money, such as residential and office rental units, hotels or shopping malls or even infrastructure ventures. This was meant to attract investors because the Philippine REIT law of 2009 required the distribution of 90 percent of income annually.
“The property firms have long been waiting for industry concerns on REITs to be ironed out. Now that the contentious points have been addressed and the provisions are acceptable to all concerned parties, potential listing applicants have been excited to have their own REITs listed,” said PSE President Ramon Monzon.
“In fact, just days after the momentous signing event, the President of the biggest property firm in the country met with us to discuss their REIT listing plans and timetable. When a one trillion peso company wants to be the first to have a REIT listing and a sizeable first one at that, you know that the confidence in this new asset class and the support it will get from property companies will be remarkable,” Monzon explained.
To best take advantage of REITs, Colliers said developers must consider divesting their properties into REITs to access a cheaper source of capital, use REIT proceeds to renovate and reposition assets such as offices, malls, and warehouses and use funds to develop integrated communities in key cities outside Manila.
Colliers said property developers must also set aside a portion of REIT proceeds for the acquisition of reclaimed properties in Manila and coliving and coworking facilities that could eventually be diversified into a REIT.
Furthermore, Colliers said REITs could be used as a benchmark for asset valuation.
“Many infrastructure projects will become more viable and accessible,” Leechiu said.
“The largest companies such as SM Prime Holdings, Ayala Land Inc., Megaworld Corp., Robinsons Land Corp. and Filinvest Land Inc. which have scale and diverse footprint, will benefit the most; and some of these companies whose stock price are currently discounted, should experience an uplift in prices,” Leechiu said.
“The amount of construction will also increase across all sectors which should spur more employment and development across the country,” he added.
Philippine tax regulations on REIT were first issued in 2011 but this asset class did not take off as an asset class since then due to stringent requirements. First, it was not acceptable for potential REIT issuers to sell up to 67 percent ownership in the prospective REIT companies (at year three from 40 percent at year one) as comparable public ownership requirements across the region were much lower at 20 percent in Japan, 25 percent in Singapore, Australia, Hong Kong and 30 percent in Malaysia.
Another major issue was that the Bureau of Internal Revenue (BIR) then subjected to the value added tax the transfer of property to the REIT.
Under the new framework recently approved by the Department of Finance, Securities and Exchange Commission and the BIR, the minimum public ownership requirement was reduced to 33 percent. The transfer of assets to the REIT is now tax-exempt and other fiscal incentives upheld.
Colliers said the take-off of REITs would likely develop the country’s property and capital markets and benefit the Philippine economy in general as it was likely to attract more foreign investments into the country. INQ