Skip to main content Skip to footer

REIT HERE, RIGHT NOW - The urgency and impact of implementing Philippine REITs

Real Estate Investment Trust (REIT) law goal is democratizing wealth and attracting more foreign investment into the property sector. Read more.

Manila, 17 June 2019 - The Philippine government enacted the Real Estate Investment Trust (REIT) law in 2009 with a stated goal of democratizing wealth and attracting more foreign investment into the property sector. But the launch of REITs was stalled by a number of regulatory roadblocks, including taxation issues and a high public ownership requirement. REITs are likely to be implemented this year as the government has agreed to relax the law’s restrictive rules. Note that most Asian economies have minimal minimum public ownership (MPO) requirements. Countries such as Japan, Singapore, and Malaysia have MPOs of between 20% and 30%.
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 are retail. 
In our opinion, now is the most opportune time to launch REITs as the Philippine property market has been on an upswing. Colliers believes the segment’s growth has been anchored on an economy that has been expanding by an average of 6.3% per annum from 2010 to 2018. The sustained economic growth from 2019 to 2022 should support the expansion of the real estate sector and the attractiveness of a REIT launch.
However, individual property market segments have been recording mixed results. While some sectors (e.g. office) have posted record-high supply and demand in 2018, and are therefore attractive asset classes to be included in a REIT, some have been posting subpar growth (e.g. retail) over the past three to four years. 
Aside from traditional asset classes such as office, retail, warehouses, and hotels, Colliers believes that other segments of the economy are likely to benefit from the launch of REITs in the Philippines. With the government being more active in attracting private sector investment, property firms should also explore possible public-private partnership (PPP) projects that cover hospitals, schools, and toll roads. Colliers also believes that developers should be on the lookout for the enactment of the proposed relaxation of foreign ownership cap on construction and retail sectors. In our opinion, easing of foreign ownership restrictions in these sectors should contribute to a more attractive REIT industry in the Philippines moving forward.
To best take advantage of REITs, Colliers recommends that developers also undertake the following – 
• 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
• Acquire co-living and co-working facilities that could eventually be diversified into a REIT

Overall, 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 sector which has significant multiplier effects to the economy.