Philippines - next real estate and property boom

The Philippines has the potential to be the world’s next property “blockbuster,” but this sector’s prospects can be maximized only if the country relaxes its real estate investment trust (REIT) law and boosts infrastructure investments.

Mr. Antonio, also the chairman of Century Properties Group, Inc., said the Philippines -- with its young demographics and solid fundamentals -- has been expanding for 66 straight quarters since 2001, paving the way for its economic renaissance after being tagged “the sick man of Asia” in the past several decades.

Changes in Republic Act No. 9856, or the Real Estate Investment Trust Act of 2009, may unlock the value of the real estate sector, Philippine Stock Exchange Chief Operating Officer Roel A. Refran mentioned.

Nearly six years since the REIT law lapsed into law in December 2009, none of the major developers have come forward with their respective offerings because of contentious issues on ownership and taxation of asset transfers.

“It’s like we have sent invitations to a party, but no one came,” APREA Chief Executive Officer Peter Verwer said. But for Mr. Refran, the “party’s not yet over.”

“There is no one-size-fits-all model. We have an advantage that we can pick up from various jurisdictions, customize them and learn from that experience. The policy decision we have to buy into is that enabling real estate development -- whether through underlying assets or REITs -- has a positive impact on GDP (gross domestic product) growth,” Mr. Refran said.

The Securities and Exchange Commission intends to revive its dialogue with the industry to make REITs a “real alternative funding source,” Commissioner Ephyro Luis B. Amatong said.

While the financial system is awash with cash, Mr. Amatong said real estate firms are facing funding pressure with the Bangko Sentral ng Pilipinas (BSP) implementing the single borrower’s limit and putting a cap on bank exposure to real estate. “These... regulations mitigate risks with the ups and downs of the industry, creating pressure for the industry to find other sources of financing aside from bank borrowing.”

To sustain its economic run, and along with it real estate’s rosy outlook, it is crucial for the Philippines to increase investments in infrastructure -- an area where the country has under-invested in past decades. “We are like an eight-year old... who started in the business. We’re now 15-16 years old, but we’re wearing clothes of an eight-year old. We have outgrown the clothes we are wearing so we should now upgrade our infrastructure,” Mr. Antonio said.

Better access will enable the Philippines to realize the potential of tourism, which can be the country’s third leg after business process outsourcing (BPO) and overseas remittances, he said. “Tourism is one of the low-hanging fruits in the economy today. However, in order to attract tourists to this country... I think we have to improve our access.”

CBRE Philippines Chairman Rick M. Santos remains bullish on the BPO sector, saying its demand for space could hit 850,000 square meters (sq.m.) by 2018 from 600,000 sq.m. currently.

BSP seeks to bridge real-estate information gap, price index in PH

After consulting with experts and industry leaders, the central bank on November 16 finally issued and published a circular ordering all universal, commercial and thrift banks to submit a quarterly report on real-estate loans, which is necessary for the generation of data under the residential real-estate price index (RREPI). This is part of a broader program to bridge a so-called real-estate information gap in the country. The full disclosure applies on all residential real-estate loan transactions granted beginning April this year.

This is in recognition of the need for timely and accurate information on real-estate transactions and have required all lenders to report in greater detail such purchases from now on. Thus, for each residential real-estate loan granted, respondent financial institutions will be required to provide the following data to the BSP in their quarterly report: month of loan granted/booked, location of property, type of property, type of housing unit, appraised value of housing unit per square meter, floor area of the housing unit, number of floors and number of bedrooms.

The effective age of the housing unit, its appraised value of lot per square meter, total area of lot, total appraised value of property, housing segment, acquisition cost and name of developer should also be provided.

All 15 details, the BSP said, are obligatory on the part of banks from the National Capital Region (NCR) and areas outside NCR.

Real-Estate sector is vulnerable to price bubbles

Talks about the creation of the RREPI started last year as part of an initiative seen helping regulators and real-estate practitioners alike to monitor price movements and prevent so-called  real estate price misalignments.

“The construction of RREPI based on banks’ approved housing loan applications is a first in the Philippines and is expected to provide a valuable tool in assessing the real estate and credit market conditions in the country,” the BSP said in a statement.

The index is said to be a function of both the supply and demand. In terms of supply, the RREPI factors in the cost of materials, construction and permits. Meanwhile, in terms of demand, the index should also help gauge the number of applications of residential real-estate permits, among others.

The BSP said the information gathered from banks would provide information for the actualization and generation of the RREPI in the country. While the banking sector has yet to react to the newly released mandate, the industry is known to tighten its lending standards once they feel the regulators are more vigilant than at any other time.

In the central bank’s senior loan officers’ survey, the central bank said the banks indicated a net tightening of their overall credit standards for commercial real-estate loans in the July-to-September quarter.

This was the 13th consecutive quarter that the banks indicated a net tightening of standards in real-estate lending under the diffusion index approach.

“The net tightening of overall credit standards for commercial real-estate loans was attributed by respondent banks largely to perceived stricter oversight of banks’ real-estate exposure,” the central bank said.

Tax reform may revive PH Real Estate investment trusts (REIT) industry

Real Estate investment trusts (REIT) may get a new lease on life as the government evaluates the adoption of a comprehensive tax reform program, an official of the Securities and Exchange Commission said. The Real Estate Investment Trust Act lapsed into law in December 2009 with none of the major property developers coming forward with their prospective offerings.

“Tax reform is in the air. It’s usually in the context of income tax, but you know, tax rin ito (REIT is also tax and it could be part of the reform),” Commissioner Ephyro Luis B. Amatong told reporters last Oct. 22, referring to the changes in the REIT Law.

The Aquino government had imposed stringent REIT rules to limit revenue losses caused by laws that grant generous tax perks. Taxation on asset transfers and issues on ownership have prompted property giants such as Ayala Land, Inc., SM Prime Holdings, Inc. and Robinsons Land Corp. to shelve proposed REIT listings.

Asked if there is still time to introduce changes to the law before the election, Mr. Amatong said: “Even if it’s not, it might be useful to start the conversation now so that when the next administration or the new Congress comes into office, mayroon nang pinag-uuspaan (discussions may resume). We hit the ground running.”

While the Philippines’ REIT Law has been in place since 2009, Indonesia and Thailand have forged ahead and saw their first REIT listings in 2013 and 2014, respectively, according to data from the Philippine Stock Exchange (PSE).

REIT listings have increased to 145 with a total market capitalization of $134.5 billion, from 118 listings valued at $65.1 billion in 2009, according to data from the exchange, citing property consultancy firm CBRE.

“It’s a wake-up call for our regulators. We need to reconsider how we can make it work,” PSE Chief Operating Officer Roel A. Refran said in an interview.

The government wants to revive talks with the real estate industry to achieve a compromise that may allow the country’s REIT market to finally take off six years after the law was passed.

“It’s difficult putting your best foot forward. There’s really a process. There’s room to evolve,” Mr. Amatong said.

Financial regulators are taking a precaution in the aftermath of the Asian financial crisis that hit the real estate industry, the commissioner said.

“We don’t want that to happen again but at the same time we don’t want to unnecessarily pull back the growth of the real estate industry,” Mr. Amatong said.

-- Business World