The Philippines has the potential to expand its real estate investment trust market to as big as those of Thailand and Malaysia, given the country’s strong domestic economy, according to an executive of Bank of the Philippine Islands.
BPI head of corporate banking strategy, products, and solutions Reginaldo Cariaso said REITs would likely appeal to investors looking for yield and attractive total returns.
A REIT is a corporation that primarily invests in income-generating real estate such as office spaces, malls, service apartments, hotels, hospitals, warehouses, and the likes.
“It’s something that investors are very much looking forward to here in the Philippines,” said Cariaso.
“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. These two countries have about $7 billion and $11 billion, respectively, of market capitalizations of REITs, which I think the Philippines is also capable of achieving,” he said.
Cariaso said despite the current high market volatility, REITs could thrive because of their defensive features.
“I believe that REITs have a place in the Philippines for investors to be able to get total returns especially during high market volatility,” Cariaso said.
He said the Philippines, just like Malaysia and Thailand, are emerging market economies that started their REIT markets later than Hong Kong and Singapore.
Malaysia and Thailand had a head start on REITs and now have bigger and deeper investor markets compared to the Philippines.
Investors in Malaysia and Thailand REITs tend to be local government and private pension funds, insurance companies, asset managers and individuals and international institutional investors.
Cariaso said the Philippines’ advantages include a larger population, strong domestic consumption, and faster economic growth.
“We have a larger population and our GDP is growing faster than Malaysia and Thailand. BPO 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,” he said.
REITs are required to distribute a minimum 90 percent of its distributable income as dividends annually to avail of certain tax benefits.
REITs’ high dividends plus the potential for moderate to long-term growth makes REITs an attractive investment option with potentially high returns.
Property developer Ayala Land Inc. last month filed an application with the Securities and Exchange Commission to raise up to P15.1 billion in capital for what may soon be the country’s first REIT.
The new company will be called AREIT Inc.