Written by ALBERT CASTRO
Improved economic conditions are key
to attracting investments to the Philippines. But if the country wants to be in
the radar of property investors, suitable products have to be introduced and
developed to attract the attention of these investors, according to financial
and property market experts.
Developing the country’s real estate
investment trust (REIT) in particular could be one of the strategies, according
to Claro Cordero, research head at Jones Lang LaSalle Leechiu.
In a recent campaign by financial and
property market experts to open up the debate anew on REIT, proponents like
Hans B. Sicat, Philippine Stock Exchange president, noted that at current
investor appetite for opportunities, the Philippines could attract an
additional $2.4 billion in new investments if REITs lift off in the Philippines.
This is enough to even bring the
Philippines to the list of highly active property markets being tracked by
Jones Lang LaSalle Leechiu like Hong Kong, China, and Japan in Asia Pacific,
according to Cordero.
The current REIT mechanism of the
Philippines, however, is not palatable to investors and pales in comparison to
neighboring REIT mechanisms in Asia, according to Sicat.
The global capital flow in direct
commercial real estate investment for the first quarter of the year amounted to
$77 billion, Jones Lang LaSalle Leechiu’s study showed.
US investors were among the most
active buyers, with German and Japanese investors among the most aggressive
buyers when it comes to their local territory. Singaporeans are also among the
few to increase their property exposure quarter-on-quarter, the study showed,
purchasing two major logistic portfolios in Japan.
Investors from Qatar also made a
significant investment in the London office market, continuing the trend of
Middle Eastern investors searching out opportunities in Europe’s major cities.
“Institutional investors backed by
sovereign capital continue to look for opportunities in the direct market, a
distinct change in strategy over recent years when indirect exposure was the
preferred route of entry,” Jones Lang LaSalle’s study on capital flow said.
Unlisted real estate funds were net
sellers (-$2.5 billion), while REITs continue to acquire assets (+$5.8
billion).
The study said the logistics sector
was the “standout performer,” on the back of a number of portfolio deals,
particularly in Japan.
The USA remains the most active
market, while Japan and the UK saw large inflows from cross-border capital
helping overall volumes.
London reclaimed the top spot for most
active city, toppling Paris.
Within Asia Pacific, apart from Japan
Hong Kong was the only other major market in Asia Pacific to see a rise in
transactional activity quarter on quarter. Australia recovered on a yearly
basis, almost doubling volumes from a year ago, while Chinese commercial
property transactions fell on a quarterly and annual basis.
Jones Lang LaSalle pegs the global
capital expected to flow into property investments at $400 billion for the
year.
“Investors remain focused on executing
their strategies albeit with longer transaction times and additional due
diligence. With prime property now re-priced, we believe investors will look to
the multitude of opportunities in secondary markets to underpin transactional
activity,” it said.
So far, the Philippine market is
seeing a robust increase in demand for new office space by multinational
companies (MNC) apart from the demand coming from the offshore and outsourcing
industry. This MNC demand, which increased the projected office space demand to
400,000 square meters a year from the 300,000 sq.m. last seen in the 1990s.
Cordero said that the return of
appetite for more office space by MNCs is driven by the need to expand their
presence in the Philippines.
In a recent REIT, the PSE admitted it
is facing an uphill battle in convincing the government to soften its stance on
the regulatory guidelines for REIT. The
PSE and other REIT stakeholders had been lobbying for a smaller minimum public
ownership while redefining taxation on REIT assets.
The government however, through the
Department of Finance, is firm on its position to require 67 percent of a
REIT’s ownership to be public. It also espoused that value-added tax and
transfer tax be slapped on assets that are folded into a REIT.
The REIT law, passed in 2009, aims to
institutionalize and prescribe benefits for REIT companies that will be
established in the Philippines.
No listing however has since been
made.
Sicat said the Philippines’
prescriptions make it “higher” compared to neighboring Asian countries that
also encourage REIT investments.
In particular, minimum public
requirement in Singapore stands at 10 percent, Australia, 25 percent in certain
cases, Hong Kong, 25 percent and Malaysia, 25 percent.
Sicat said the 67 percent public
requirement creates “a huge market overhang” among REIT issuers. Sicat and his
group is proposing an alternative which is to tie the public ownership
requirement to the size of a REIT’s capitalization. This means a
highly-capitalized REIT would have a lower float compared to a small REIT.
On the VAT issue, the group noted that
such transfers were previously tax-free and were not subject to any form of
tax.
They argue that the imposition of the
VAT, if based on the fair market values of the properties, “may dampen the
yields on Philippine REITs, further making them uncompetitive compared to
regional counterparts.”
“The imposition of VAT may likely be
more acceptable to the issuers if the BIR can clarify that the basis for its
VAT computation would be the current ‘assessed’ values of the properties to be
transferred, the same asset valuation appearing in their real property tax
declarations,” they added.
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