REIT to boost devt of RP’s property market

Written by Rizal Raoul Reyes / Correspondent

Sunday, 11 April 2010 19:25

The passage of the real estate Investment Trust (REIT) will boost the development of the property market in the country, according to industry experts interviewed by the BusinessMirror. Rex Drilon II, chief operating officer of Ortigas & Company Limited Partnership (OCLP), said the company is giving all-out support to the development not only of the REIT, but the development of the whole capital market. As far as the REIT is concerned, Drilon said the passage of the law will enable small savers to have other investment options to boost their savings funds. “Even the big players may want to put some of their shopping centers and other recurring income properties under the REIT structure so that they can free up more funds for their other real-estate development projects. More projects, more employment. In the end, more taxes. Everybody wins,” he said. Drilon pointed out the passage of the REIT Law is very appropriate because the country is playing catch-up with its Association of Southeast Asian Nations (Asean) neighbors. For instance, Drilon said Hong Kong and Singapore have sophisticated REITs while Malaysia and Indonesia have started their own REITs. “It is about time the Philippines has its own REIT Law. We have the advantage of learning from the lessons of the other countries that have adopted the REIT structure in the past,” he said. In a related development, property management consulting company CB Richard Ellis (CBRE) Philippines concurs with Drilon that REIT would boost the property market further. “Record OFW remittances, ongoing government investment in infrastructure to support the growing tourism industry, and a strong consumer market create a good environment for REIT,” said CBRE chairman Rick Santos in a media statement. Citing a study of the Gerson Lehrman Financial Research Group, the company said REITs in Asia has gone from five to 80 in five years. They also think that REITs have consistently performed well in both mature and emerging stock markets and that the Philippines would do well to follow the lead of other Asian countries. “REITs allow individuals to participate in large-scale real-estate projects as small investors with the important advantage of liquidity—as shares can be quickly and easily sold. Opening themselves up to investors in this way eases the financial burden on developers and generates capital for new developments,” said CBRE also in a media statement. An influx of foreign direct investment would be expected with the introduction of REITs. “Many existing real-estate projects clearly generate a lot of revenue and foreign investors would certainly be interested in contributing to the Philippine capital markets through them,” said Santos. CB Richard Ellis projects that the property market will see increased growth due to REITs within the next four years. Drilon said that up to a certain extent, the REIT Law can provide a level playing field. Interestingly, smaller developers can form REITs and hope to entice investors to join in their projects. However, Drilon said small and large investors will still look at the same fundamentals such as location, people behind the project and their track record, project feasibility and projected returns, among others. Drilon pointed out the small players might be required to make their projects more attractive to the prospective trust/investors while the bigger players may have an easier time to attract new investors. However, Drilon warned some unscrupulous property developers might just use the incentives covered by the REIT Law to skip tax payments. As a result, the government would emerge the biggest loser because of the impact on tax collection. “The hope is that there will be a negligible number of these ‘carpetbaggers’ who will use the REIT structure to evade taxes rather than be a real contributor to development of the industry,” he said.