REIT Law being crafted in the Philippines
10/10/2006

Local investors will likely have to wait at least another year before they can trade stocks of real estate investment trusts, or REITs, in the Philippines.

"There is limited time to pass the (REIT) enabling law," said Senator Edgardo Angara, chairman of the Senate committee on banks, financial institutions and currencies, Friday.

"Maybe in the next Congress."

Congressional elections are scheduled in May.

Angara, who was keynote speaker at a forum on REITs, said it will take time to complete the comparative studies and prepare the necessary legislation.

"It is better to start right than speed it up and end frustrated," said Angara, who recalled the experience of Hong Kong, which had to revise its first REIT law because it failed to work.

A REIT is a company that owns and usually manages income-generating real estate property such as offices, apartments and industrial estates. It usually pays 90% of its net income as dividends.

Francis Lim, president of Philippine Stock Exchange, who helped organize the REIT forum and assist the Senate in drafting the enabling law, said it is more likely the needed legislation will be passed in 2007.

He said potential problem areas such as taxation are still being identified.

While REITs were introduced in the U.S. in the 1960s, they are relatively new in Asia. Except for Malaysia, which saw securitized real estate earnings in the late 1980s, countries in the region started to embrace REITs only around 2001.

"The Asian REIT market is in its infancy," said Edmund Ho, director and head of Asia real estate investment banking at Citigroup. "There is a lot of opportunity for the market to grow."

He said that in the Philippines, where a third of the 39 listed property companies are undervalued and some $61 billion in bank deposits are earning low interest rates, the REIT potential is at least $5 billion.

Ho said REITs offer investors yields that are 200-300 basis points higher than 10-year government bonds, and open the possibility of revaluation of listed property companies.