Real Estate Investment Trusts (REITs) in the Philippines came one step closer to reality with the approval of a new set of rules. The Department of Finance, Securities and Exchange Commission, Bureau of Internal Revenue and Philippine Stock Exchange all signed off on the new REIT rules.
A REIT is a publicly listed stock corporation that owns income-producing real estate. Shopping malls, offices, hotels and buildings in the industrial or logistic sectors can be included in a REIT. For developers, REITs allow them to raise capital in exchange for providing shareholders with future dividends the properties generate. According to Santos Knight Frank, REITs are mandated by law to distribute 90 percent of their retained earnings as dividends, which makes them appealing to investors.
“We are very encouraged by the news that the government has released the new set of rules on REITs that address the concerns of investors and real estate developers. These rules bring about a significant opportunity to democratize the Philippine property market, allowing the small investor to participate in high-value real estate assets alongside major corporate institutions. REITs have the power to sustain long-term growth for the Philippine economy through investments,” Rick Santos, Chairman & CEO of Santos Knight Frank, explained.
The new rules call for minimum public ownership to be lowered and also require proceeds from REIT shares that are sold to be reinvested in real estate or infrastructure in the Philippines. A few new tax regulations in regard to REITs were also finalized as part of the new rule set.
“We anticipate that REITs will drive an increase in acquisition, consolidation, and property development activities across the Philippines in the coming years. New capital raised by the developers through REITs will enable expansion of the real estate sector not only in Metro Manila but also in the provinces, and with it generate jobs across many sectors,” Kash Salvador, Associate Director for Investment & Capital Markets, Santos Knight Frank, noted.
Long road for Philippine REIT approval
The original law governing REITs in the Philippines was passed in 2009 but it has taken more than a decade to get to this moment. Concerns about a loss of tax revenue from the government as well as a desire from developers to ensure REITs were actually viable saw the approval process become protracted.
Things got moving last year with some reports claiming REIT launches were imminent, but these last few rules couldn’t be agreed upon in time. REIT stocks in Hong Kong and Singapore are already popular with Santos noting they usually outperform non-REIT property stocks in Asia-Pacific.
Experts believe developers will form REITs focusing on the office sector first as they look capitalize the country’s booming commercial property market. According to Reuters, Ayala Land could be the first developer to launch a REIT in the country with the firm hoping to raise as much as USD500 million.