REITs to lure more foreign investments, boost infrastructure development — property advisory firm

MANILA, Philippines — The release of the new implementing rules and regulations (IRR) for the Real Estate Investment Trust (REIT) Law will attract more foreign investments and boost infrastructure development, a property services firm said.

“In our opinion, the successful launch of REITs in the Philippines bodes well for the property market and the Philippine economy in general as it is likely to attract more foreign investments into the country. REITs should also stoke the construction and infrastructure sectors which have significant multiplier effects to the economy,” Colliers International Philippines said.

Last Monday, the government issued the new IRR for the REIT Law, a move which allows the REIT industry to finally takeoff.

The REIT Act, which allows the creation of a publicly listed stock corporation that owns income-generating real estate assets such as malls, offices and hotels, was enacted in 2009.

The launch of REITs has been stalled however by a number of regulatory roadblocks including taxation issues and a high public ownership requirement.

Under the new IRR, the minimum public ownership has been reduced to 33 percent from 40 percent.

Funds raised from REIT are also mandated to be reinvested in the domestic market.

“The full implementation of REITs places the Philippines at par with other Asian economies that have fully developed capital and real estate markets. Colliers believes that REIT implementation in the Philippines will result in the further differentiation and innovation of property development projects in the Philippines which should eventually benefit Filipino investors and end-users. Overall, a successful REIT launch should take advantage of the government’s ambitious infrastructure development plans as well as the objective of relaxing foreign ownership in crucial economic sectors such as construction and retail,” Colliers said.

As the Philippine property market has been growing, it said now is the best time to launch REITs.

Colliers cited the Philippine office market as one of the most active in the region, with about a million square meters (sqm) being completed every year and an annual take up of more than 900,000 sqm.

Office lease rates in Metro Manila are also seen to be among the fastest-growing in Asia from this year until 2022.

“Colliers believes the property segment’s growth has been anchored on an economy that has been expanding by an average of 6.3 percent per annum from 2010 to 2018. The sustained economic growth from 2020 to 2022 should support the expansion of the real estate sector and the attractiveness of a REIT launch,” the property services firm said.

Aside from traditional asset classes such as office, retail, warehouses, and hotels, the firm said other segments of the economy are also seen to benefit from the launch of REITs.

As the government is actively attracting private sector investment, property firms are urged to consider possible public-private partnership projects such as hospitals, schools, and toll roads.

Developers are also advised to look out for the enactment of the proposed relaxation of foreign ownership cap on construction and retail sectors.

“Easing of foreign ownership restrictions in these sectors should contribute to a more attractive REIT industry in the Philippines moving forward,” Colliers said.

To take advantage of opportunities in REITs, Colliers recommends that developers 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; use REIT funds to develop integrated communities in key cities outside Manila; set aside a portion of REIT proceeds to acquire reclaimed properties in Manila; use REITs as a benchmark for valuing assets; and acquire co-living and co-working facilities that could eventually be diversified into a REIT.

Among the property developers that have expressed interest in REITs are Ayala Land Inc. DoubleDragon Properties Corp., Megaworld Corp., Robinsons Land Corp. and Century Properties Group Inc.

Meanwhile, Management Association of the Philippines and former Philippine Stock Exchange president Francis Lim said the business group also welcomes the government’s move to relax the rules for the REIT.

“This is a concrete action of the Duterte administration not only to further develop our equities market and real estate sector, but more importantly to boost infrastructure development and investor confidence in our economy,” he said.