ALTHOUGH the Philippines is a star in the emerging market for property investments, the country still needs to pass a real-estate investment trust (REIT) to broaden the opportunities for investors to participate.
In a forum during the recently concluded Urban Land Institute’s (ULI) meeting held in Makati City, Philippine Stock Exchange President Hans Sicat said the REIT is a must-have in any developing capital market. “It is the same issues since two years ago,” Sicat said.
“After 2016, we can probably move on to discuss the issue again,” he added.
“Failure to get a REIT industry off the ground also has limited the attraction of the market for the institutional investors. Still, economic prospects going forward appear to be strong, and should the next government improve the regulatory environment for foreigners, there could be more opportunities for international money in the future,” said one member of the Emerging Trends in Real Estate 2015 study of ULI.
Alistair Meadows, head of International Capital Group, Jones Lang Lasalle, noted that Singapore has benefited when it passed its REIT law. He added that the government can play a major role in boosting the capital market of the Philippines.
Alexander Cabrera, chairman and partner of Isla Lapana/PricewaterhouseCoopers, said the law on transfer of taxes should be amended to ensure it would be in sync with the market in case it is passed.
John Fitzgerald, president of ULI, said it is important for the Philippines to have a REIT law to ensure its competitiveness, especially when the Asean economic integration supposedly takes off this year. Another Manila-based interviewee said the government is still working on the taxation issues of REIT. “The government thought it might be too early because it would cause too much tax leakage. So the REIT sector will eventually happen, but it’s back on the back burner at the moment, probably until 2016.”
Eduardo Olbes, executive vice president, Security Bank, said another issue affecting real estate is the introduction of stricter capital requirements by the Bangko Sentral ng Pilipinas. “It is causing concern from investors,” he said.
“The ownership rule in the Constitution must be tackled by Congress because it is a hindrance to attract more capital. There’s a lot of money chasing little real-estate investments,” Sicat said.
“Transparency is another factor to develop capital in the property market.”
Nevertheless, Sicat said that the Philippines is in an interesting position with the introduction of the Asean economic union and abundance of capital in the market. Furthermore, he said, the business-process outsourcing industry will continue to be a major growth economic driver as it is geared to overtake remittances of overseas Filipino workers in two years.
“This means growth will require more office spaces and the spillover effect will benefit more industries such as food and services,” he said.
Patterned after mutual funds, a REIT is a company that owns or finances income-producing real estate. REITs provide investors of all types regular income streams, diversification and long-term capital appreciation.