PostHeaderIcon Real Estate Investment Trust (REIT) in the Philippines and why you should invest in them

In 2009, the Philippine Congress enacted Republic Act No. 9856, otherwise known as the REIT Act of 2009. At long last the Philippine investing public has moved from the medieval ages to the industrial age.

Real Estate Investment Trust (REIT, pronounced as “reet”) is not a new concept. It has been around since the 1800s in the United States. Today there are more than 193 publicly traded REITs in the US, with assets of more than $500 billion. In Australia, Listed Property Trust assets have reached A$106 billion. In Singapore, Property Trust assets are valued at S$25 billion. REITs have also gained prominence in countries like Canada, Hong Kong, Japan and Malaysia. So you see, REITs has been around in other countries for a long time already, doesn’t surprise me though that it is just introduced recently in the Philippines. But I am glad that we are finally moving with the world albeit at a slower pace. Hopefully it will be much faster in the decade to come.

REITs were introduced into the Philippines to somehow democratize wealth by broadening the participation of Filipinos in the ownership of real estate. Everybody knows that engaging in real estate business (Now I am not talking here about purely selling real estate on a commission basis) requires a lot of capital. Owning REITs in a sense helps you be part of the Real Estate Business without shelling out so much capital since buying a share in an REIT is owning a fractional share or becoming part owner of the Real Estate Investment Trust. REITs may be a great concept but the problem again lies with information dissemination. The Philippine stock exchange has been around for more than 80 years and yet only less than 1 % of the Filipinos invests in stocks. If democratization of wealth is the goal then the Philippine Stock Exchange market education department has to do more in terms of educating the public about stocks and REITs.

Anyway, let me introduce you to REITs and why you should invest in them. This is not a comprehensive guide but just an introductory one. I have not personally invested in REITs as it in process of being introduced to the country. But following developments, I believe it is a very promising alternative vehicle of investment.

A Real Estate Investment Trust is a stock corporation created for the purpose of owning and managing income-generating real estate such as office buildings, residential condominiums, shopping centers, hotels, warehouses, hospitals, airports and tollways.

The reason why you should invest in REITS is because REITs it has both the characteristics of both a fixed income instrument and a variable income instrument. This gives the investor an advantage, especially the investors who are not so aggressive but are also not so conservative.

Fixed income from REITs is gained through regular dividends. The REIT Act of 2009 requires REITs to distribute 90% of its distributable income to investors.

Variable income comes from Market Volatility. This is just like capital appreciation in stocks. Holders of REIT shares may expect an increase in his REIT share price whenever there is increased demand for it. A decrease demand may of course have the negative effect.

Presently Ayala Land, Robinson’s Land and SM Prime Holdings are seriously considering to offer REITs. Other real estate companies listed in the Philippine Stock Exchange such as Belle Corporation, Mega World Corporation and Shang Properties are adopting a wait and see situation and are waiting for the big boys to make their first REIT move before making an REIT offer.

A primer on Real Estate Investment Trust is now available to the public for free download at the Philippine Stock Exchange website at www.pse.org.ph. If you can’t download the file, subscribe to my feeds for free and you can also get a detailed report on major REIT players.

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    7 Responses to “Real Estate Investment Trust (REIT) in the Philippines and why you should invest in them”

    • Dale says:

      How can I invest in REIT in the Phil?

    • Edwin Verdejo says:

      Hi Zig,

      When will this program start? You said that Ayala Land, Robinson Land and SMPH were considering to offer this program; they are just condering and there is still yet no confirmation from these 3 companies when will they start to offer REITs to the public. Thanks.

    • zigfred says:

      Edwin: There’s no definite date yet. The REIT law hit a snag with the BIR. We’ll wait and see.

    • jomar delantar says:

      Hey zig,

      Just have read your blog and its nice to know that REIT is now about to start in the philippines. Actualy I dont have broad idea about this, I have just read some books but i think it will be a big help to the poeple. Any way one question about this’ just want to know how much we should start to invest as minimum. Thanks.

    • Jerold says:

      Hi Zig,

      What happens if you buy robinson land , ayala land and SMPH shares now before the REITS offering? will they be converted into REITS shares if it is indeed implemented?

    • zigfred says:

      Jerold: Its a good question, but I am not sure, it will depend on the respective companies on what they will do after the offer the REIT

    • zigfred says:

      Jomar: REIT has not yet been fully implemented yet, so we need to await the full implementation.

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