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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 obstacles.
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 restrictive
- MPO requirements should be lowered to attract more investors and players
- 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.