Given the country’s strong consumption-led economy, the Philippines has the potential to be a $7-$11 billion real estate investment trust (REIT) market, according to Reggie Cariaso, Bank of the Philippine Islands (BPI) senior vice president.
“There’s a lot of potential. Interesting proxies for this potential in the Philippine REIT market are Malaysia and Thailand, which have been growing their REIT markets for the past five to seven years,” Cariaso said.
These two countries have about $7 billion and $11 billion, respectively, of market capitalizations of REITs, which Cariaso thinks the Philippines is also capable of achieving.
Malaysia and Thailand are emerging market economies that started their REIT markets later than the now mature REIT markets of Hong Kong and Singapore.
Aside from having a consumption-led economy, Cariaso said other characteristics that will drive the REIT market include having a large and growing population and sustained economic growth.
“We have a larger population and our GDP (gross domestic product) is growing faster than Malaysia and Thailand. BPO (business process outsourcing) and shared services are bigger in the Philippines and our domestic consumption is strong. There is significant potential for office, retail, and commercial growth, as well as industrial, logistics, and infrastructure, if we execute successfully,” Cariaso said.
He added REIT is a welcome addition to the Philippines’ financial market, particularly in maintaining a robust equities environment.
In general, he said REITs are less risky than equities, making these attractive to less risk-averse investors. REITs however are still considered more risky vis-a-vis fixed-income securities like bonds and treasury bills.
“Equity investors will be attracted to REITs’ higher dividends, lower volatility, and moderate growth while fixed income investors will be attracted to REITs’ stable dividend income, higher yields, and potential for hedging against inflation,” he said.
REITs also tend to outperform other stocks in high market volatility and low interest rate environments, he added.
“It’s also designed to be a fairly conservative instrument. And I think investors who are ready to break out of fixed income, who like fixed income instruments. Actually, what I think REIT appeals to is, first of all, equity investors because they already are invested in equity. But if they are looking for yields, less volatile stocks, I think it’s definitely something that equity investors will already be attuned to,” he said.
“I think it’ll also be attractive to fixed income investors. Because in the market environment like ours, where you have relatively low interest rates and investors are looking for yield with moderate risk, and so REITs will give you that avenue. So I think fixed income investors will also be attracted to REIT,” Cariaso added.
Citing the experience of both Malaysia and Thailand, he said these countries’ REIT has been a favorite of government pension funds, insurance companies, and asset management firms, among others.
“There are also international institutional investors,” he said.
It will also be a good opportunity to attract foreign investors into the market, though issuances have to be in the range of $200 million to $1 billion to be palatable, noted Cariaso.
Ayala Land Inc., a sister company of BPI, recently filed an application to raise up to P15.1 billion through the REIT. It is the first one to try its prospects in issuing a REIT in the Philippines, through its unit AREIT Inc.
Cariaso said BPI’s investment banking arm BPI Capital Corp. is also talking with other potential REIT issuers, particularly in the provinces.
A REIT is a corporation that primarily invests in income-generating real estate such as office spaces, malls, service apartments, and even hotels, hospitals, warehouses, and the like.
REITs are required to distribute a minimum 90 percent of their distributable income as dividends annually to avail of certain tax benefits. Dividends distributed operate effectively as a tax shield for corporate income tax.
REITs’ high dividends plus the potential for moderate to long-term growth make these an attractive investment option with potentially high returns.
Real estate has proven to be an excellent long-term investment.
However, buying property often comes with a sizable monetary investment.
REITs are a great alternative to owning real estate directly and a way to diversify an investment portfolio.
The REIT will also be managed by professionals with expertise in fund and property management.
