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Philippines urged to implement REIT system

Property sector may see inflow of $500M in new capital
By: - Reporter / @daxinq
/ 10:32 PM May 17, 2012

The Philippine property scene may experience the inflow of as much as $500 million in fresh foreign capital within one year if the real estate investment trust (REIT) system is implemented in the local financial market.

Simon Treacy, group CEO of property investment fund MGPA, said that based on his experience closely working in Malaysia—the latest nation to allow REITs in Asia—investments into the country could easily hit $2.5 billion in two years.

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He stressed, however, that for the Philippines to benefit from these foreign investments, policymakers and the private sector would have to restart stalled talks on the local issuance of REITs, which have faltered due to the Department of Finance’s opposition to the tax-exempt status granted to it by law.

“The Philippines is now the most overlooked, undervalued real estate market in Asia,” Treacy said. “Both sides [of the debate] should come back to the table to talk about this.”

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REITs are tradable securities whose underlying assets are property portfolios that earn from either real estate sales or rent.

They are issued by property developers and sold to investors whose funds are then reinvested into new property developments.

Treacy, whose MGPA fund is one of the largest investors in REITs in Singapore, Malaysia and Poland, said that the Philippines is now in a unique situation to draw in more foreign investments if this novel scheme is allowed.

He noted that—apart from the advanced Singaporean financial system—policymakers in Japan and Malaysia were in the past also hesitant to introduce REITs in their country because of the misconception that the government would forego valuable tax revenues with the entry of these tax-exempt securities.

He pointed out, however, that both Japan and Malaysia are now reaping the benefits of massive inflows of foreign capital into their real estate sectors, helping keep their property markets buoyant and helping create jobs for their citizens.

“Malaysia, which started the system in 2009, now has 11 REITs,” he said.

Treacy made his comments during a recent talk before the local chapter of the Urban Land Institute, where proposed urban planning improvements were discussed by representatives of the public and private sectors.

In particular, the group noted that Metro Manila is the world’s fifth-largest urban area and, as the country’s political and economic center, can be improved with a more sustainable approach to city development.

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TAGS: Philippines, property, Real Estate, real estate investment trust (REIT)
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