THE country does not really need real estate investment trusts (REITs) due to the number of restrictions they present, a real estate analyst said.
REITs are a type of security invested in real estate through property or mortgages and often trade on major exchanges like stocks, according to Investopedia.
In an interview, KMC Mag Group head of research Anton Nordberg told reporters that REITs would offer the real estate sector benefits but they are not something the industry needs right now.
“REITs would be a good thing. Of course it would increase transparency. It would also support the economic growth. But for me, it’s still not something that the Philippines needs. It’s something that would be nice to have, but not necessarily a thing that we need,” Nordberg said.
Nordberg also pointed out that there are several issues of the current REIT law that do not encourage anyone to make use of it.
One of these issues is the requirement of a real estate portfolio upon investing in REITs. Nordberg said this means only the big developers are able to invest in REITs.
“If you want to build REITs, you need to have the real estate already. You need to own the real estate before you can transform that under REITS. And because there’s nothing for sale, it’s only natural that big developers own the stock, meaning if someone else wants to develop a REIT, they would need to build their portfolio first,” Nordberg said.
For his part, 8990 Holdings chief executive officer Januario Jesus Atencio said REITs benefit the leasing property sector.
“Actually, REITS benefit the leasing sector, so these are the malls, these are the commercial buildings. It’s another form of securitization that the securitization cash flows come from installments on amortizations,” Atencio said.
Atencio noted that if the REITs regulations are relaxed, this would allow developers who invested in REITs to get their cash flows sooner so that they can continue building.
“The cash flows coming in from REITs are rentals. So if you are able to do that, if you are able to relax the REIT, especially in the definition of how taxes can be cascaded towards the buyers of the REITs, then the developers who have to do commercial buildings will get their cash flows sooner and continue building,” Atencio said.
He added: “So what the REIT does is that it gets the cash flow of the mall rentals, makes in into a security with a yield and that’s what they sell.”
Besides the real estate portfolio requirement, Nordberg also said the country’s strict foreign ownership rules are one of the factors affecting the current REITs law.
“Foreigners cannot do it [invest in REITs]because they are not allowed to invest,” Nordberg concluded.