Vol. XXII, No. 158 [ BusinessWorld Online ]
Friday, March 13, 2009 | MANILA, PHILIPPINES
BY MARIA ELOISA I. CALDERON, Senior Reporter
REAL ESTATE investment trusts (REITs) face rosy prospects in the Philippines given their advantages, an industry expert said.
Senate Bill 2639, a bill seeking to create REITs, will give retail investors entry into the property sector and provide property developers fresh access to capital once passed, said Kristine Braden, head of global banking at Citibank, NA.
The proposed legislation, which hurdled third reading at the Senate a week ago, allows investors to take ownership or equity shares in income-generating real estate properties through REITs.
A REIT is a stock corporation that pools investors’ funds and invests these in real estate ventures.
Allowable investments under the Senate bill are income-producing real properties; real estate-related assets; managed funds, debt securities and shares issued by listed or foreign non-property corporations; government securities issued on behalf of the government and cash and cash equivalent items.
The House version of the bill still has to be approved on second and third reading, however.
Currently, investor access to the property market is only by way of buying shares in a listed real estate firm — something that only a few could afford.
"It will take real estate investing down to the people’s level... the retail market... individuals like you and me who have interest in taking equity positions in these assets," Ms. Braden told BusinessWorld.
Ms. Braden, who prior to her Philippine posting handled Citi’s REITs and other property-related financial transactions in the Asia-Pacific region, said the new investment tool should be palatable to Filipino investors as the assets pooled are strictly cash flow-generating properties, ensuring stable returns.
The proposed bill, authored by Senator Edgardo J. Angara, requires REITs to distribute at least 90% of profit in the form of cash dividends to investors.
REITs must have a minimum paid up capital of P100 million at the time of their registration, according to the proposed legislation.
"I think Filipino investors will be interested in buying REITs. It will take time as there is an education process for those who will be interested in buying equities but because of the historical stability of REITs, it should be an attractive product for them," Ms. Braden said.
"It provides a very different way for investors to access the property market because they [REITs] have relatively stable assets and relatively stable cash flows, which give them a nice yield."
Ms. Braden is also optimistic about REITs’ appeal to property developers, noting that the structure would provide the latter an alternative to funding.
"It [REITs] allows developers to recycle capital. [When developers sell the property into a REIT structure], it will allow them to focus on the development of new properties. So from their perspective, it will be a positive development because it will allow them to continue their development pipelines," she said.
Despite the worsening global economic landscape, the Philippine property market should remain buoyant, said Rick Santos, chairman of CB Richard Ellis Philippines, Inc.
The visiting executive had said in a forum earlier this week that there will be no let-up in mall expansions and the hotel and resort industries would benefit from rising demand in the run-up to the 2010 presidential elections.
US companies’ cutting overhead cost in the face of recession would continue to outsource their back-office operations in cheaper labor markets, including the Philippines, which should be positive for the BPO [business process outsourcing] sector, Mr. Santos said.
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