When the Real Investment Trust Act (Reita) finally became a law
in 2009, the creation of an REIT system in the Philippines was
considered to be a huge step, as it plays catch up with the rest of
the world. With this investment scheme, it could unlock real estate
values and even develop capital markets. REIT corporations would be
established, using collective investor funds to buy and manage
assets from the real estate market.
Deemed as a highly attractive investment product, the REIT
market was valued at about $604 billion globally and at $68.33
billion in the Asian market back in 2008, the time the Philippines
was still discussing the passage of the Reita. During that year,
the ASEAN integration was still a few years away, and this was seen
as a crucial move for the country, as this could further generate
and mobilize capital and sustain the growth of the property and
capital investment market.
The REIT industry across the globe has continued growing a few
years since the REIT Act was passed into law. In June 2014, it was
estimated to be worth about $1.4 trillion globally while in Asia,
it has grown into a $140 billion-industry.
Unfortunately, even with the growth of REIT, the Philippines
hasn't made any great stride. Five years since it was implemented,
several blue-chip property companies (i.e. Robinsons Land Corp.,
Ayala Land. Inc., and SM Prime Holdings, Inc.) have expressed
interest and have already set up the REIT corporations necessary to
implement, but these have been put on hold because of a couple of
Roadblocks to REIT growth in PH
- BIR (Bureau of Internal Revenue) imposing a 12 percent
additional cost for corporatizing the income-generating assets into
REIT for owners of the property and tight escrow requirements
- SEC (Securities and Exchange Commission) increasing the MPO
(minimum public ownership)
The restrictive tax policies, such as the value-added tax on
property transfers, have dampened interest on REIT in the country.
The investment product, unfortunately, seemed to have tight rules
to comply with. The issue of high friction cost should be addressed
as well to make this an attractive investment option.
Making REIT more competitive
- Tax rules should be revised to make REIT less
- MPO requirements should be lowered to attract more investors
- Implementing rules and other regulations should be updated by
the SEC and BIR
The rest of the REIT markets in Asia have been pulling all the
strings to create the best environment for growth and development
of the said sector. It is about time that the REIT law be amended
as this is both crucial and strategic as the property market is
currently on upwards trajectory. At least about $2.4 billion is at
stake here, the amount that can be generated by the Philippines in
new investments from the private sector, driven by increased
capital through REIT.