Getting the ball rolling: Revisions to legislation are giving rise to the country’s inaugural real estate investment trust


While real estate investment trusts (REITs), or publicly listed stock corporations that own income-generating real estate assets, have been notionally possible since the REIT Act of 2009, no asset of this type has been established. However, this is set to change as local real estate firm Ayala Land announced in April 2019 that it will raise funds for the country’s first-ever REIT, paving the way for others to follow suit.


Under the law REITs must list on the Philippine Stock Exchange, be a corporation with paid-up capital of at least P300m ($5.6m) and have a minimum of 1000 public shareholders, with each owning at least 50 shares. REITs must distribute 90% of their retained earnings as dividends, and, while they are subject to the 30% corporate income tax, these dividends are excluded from net taxable income. They are exempt from the minimum corporate income tax of 2% of gross income, and benefit from having to pay 50% of the stamp tax and registration fees that apply when transferring a property asset.

However, developers have thus far declined to take up the option due to unfavourable tax and minimum public ownership (MPO) requirements drawn up by the Securities and Exchange Commission (SEC). “The REIT Act has been around for about 10 years, but the government was not really supportive because it feared a loss in taxes. Therefore, the implementing rules and regulations (IRRs) were drawn up in such a way that meant no one wanted to use them,” Guillermo Luchangco, founder, chairman and CEO of financial services and property development conglomerate ICCP Group, told OBG.

This may be about to change, however, as the SEC is revising the IRRs to make REITs a more attractive proposition to property developers and investors. The revision is expected to be completed by the end of 2019. Having the SEC involved in drafting additional IRRs differs from the REIT structure successfully deployed in Hong Kong, where the REITs market is worth $38bn, and in Singapore, where it is valued at $65.8bn and accounts for 8% of the Singapore Exchange’s market capitalisation.

Inaugural REIT

The introduction of the Tax Reform for Acceleration and Inclusion Law, locally known as TRAIN, removed the 12% tax imposed on the transfer of properties, clearing a potential barrier for REITs. In April 2019 Ayala Land became the first developer to seek to raise funds for the Philippines’ inaugural REIT, opening the door for a substantial boost to the country’s capital market. According to international media, the firm will look to raise $500m in order to test the legislative framework and acquire office assets in Manila’s financial hub of Makati.

Meanwhile, developers such as Megaworld, DoubleDragon Properties and Robinsons Land have reported interest in REITs, although they were awaiting the final publication of the revised IRRs. DoubleDragon indicated in June 2019 that it would eventually list all four of its major subsidiaries under the structure.

In December 2018 the SEC reported that it was in favour of reducing REITs’ MPO to 33%, as opposed to the current obligation to reach 67% within three years. Regardless, Ayala Land promised to sell 67% of its REIT company to the public. Ayala’s REIT should help clarify two aspects of the framework. The first is whether the firm will have to abide by a requirement to keep the taxable income it intends to pay as dividends in escrow with the government until the MPO is reached. The second is the stipulation that money raised from the float must be reinvested in the Philippines. “It is a difficult stipulation, but they are in the process of resolving the issue,” Luchangco told OBG. “The proposition is that if you plan to send REIT income abroad, you first have to register it.”

The weight of investor interest and the government’s apparent enthusiasm to clear the remaining obstacles for developers should see others follow Ayala Land’s foray into the Philippines’ REIT market.