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Real estate is a very profitable investment, but many middle-class Filipinos shy away from it because they can’t afford the high purchase price and the recurring costs of property ownership.
Enter the real estate investment trusts (REITs)—the emerging alternative for small investors who want to make money in real estate.
REITs offer an easier, more accessible, and more affordable way to earn from large-scale, profitable properties without having to pay for their full cost.
Several developments in the real estate market have paved the way for the viability of REIT investing in the Philippines. For one, requirements for REITs in the Philippines have become more relaxed, encouraging the entry of companies like the Ayala Land REIT (AREIT), the first listed REIT in the stock market.
As a result, more real estate companies are expected to make their REITs available to public investors in the future.
What is a REIT?
A real estate investment trust (REIT) is a corporation that earns recurring income from properties they own and manage. A REIT makes money by collecting rentals, user’s fees, toll fees, parking fees, or storage fees from their tenants.
Not all real estate companies qualify as REITs in the Philippines. To become a REIT, a corporation should meet the requirements under the Real Estate Investment Trust Act of 2009 (Republic Act 9856) for the protection of investors.
A REIT must satisfy the following criteria along with others stated in the REIT law:
- Public company listed with the Philippine Stock Exchange (PSE)
- At least 1,000 public shareholders, with each owning at least 50 shares (Minimum public ownership must be 33% of the REIT’s outstanding capital stock.)
- Paid-up capital of at least Php 300 million
- At least 75% of the REIT’s deposited property consisting of income-generating real estate assets
- An appointed independent fund manager who implements the REIT’s investment strategy
- An appointed independent property manager who manages the REIT’s properties
- An independent appraisal company that conducts a full valuation of the REIT’s properties at least once a year
As of this writing, AREIT, Inc. is the first and only listed REIT in the Philippines. A second REIT listing will be offered starting in the fourth quarter of 2020 courtesy of DoubleDragon Properties Corp., a PSE-listed property developer.
Update: Double Dragon REIT (March 2021)
Property developer DoubleDragon Meridian Park Properties sold P14.7 billion worth of shares of its real estate investment trust (DDMP REIT) on its initial public offering (IPO)
- DDMP REIT’s has set a new record high for local IPO trading as 50,740 investor accounts participated during launch, completing the sale of 14.7 billion worth of shares
- It reached Php2.40 per share on its inaugural trading day and closed at Php2.25 per share
- DDMPR is projected to have a dividend yield of 5.07 percent for 2021 and 5.45 percent for 2022 (based on its REIT plan)
How Does a REIT Work in the Philippines?
Here’s an overview of the REIT investing process—from the establishment of a REIT to when its investors earn money from it.
1. A real estate company creates a REIT corporation.
A REIT company starts with a sponsor that provides and transfers income-generating properties into the REIT entity.
For example, AREIT was incorporated as a real estate company in 2006 by its sponsor, Ayala Land, Inc. AREIT operates three commercial buildings in Makati: Ayala North Exchange, McKinley Exchange, and Solaris One.
Meanwhile, DoubleDragon is set to transfer its most valuable real estate asset into a REIT: the DD Meridian Park in Pasay City that consists of seven commercial buildings.
2. The REIT gets listed in the stock market through an IPO.
After complying with all the requirements under the REIT law, the real estate company files its REIT listing application with the PSE and the Securities and Exchange Commission (SEC).
Once the REIT gets the SEC approval, it can already list its shares in the PSE through an initial public offering (IPO). This means the REIT is selling its shares, which public investors can buy in the stock market.
Funds raised from the IPO are used for the REIT company’s expansion i.e., acquiring more properties to increase revenues.
3. Investors get paid as the REIT earns income.
When you buy shares of a REIT, you own a portion of its real estate assets. A share of the income generated from that investment is regularly paid back to you as a shareholder in the form of stock, property, or cash dividends.
REIT Investing: What are its Similarities and Differences from Other Investments?
|Investment Types||Similarities to REIT Investing||Differences from REIT Investing|
|Real estate investing||Both investments allow investors to own properties.||Real estate investors have to shoulder the full cost of the acquired property. REIT investors pay only a small fraction of the property value in the form of shares.|
|Mutual fund investing||Funds from individual investors are pooled and professionally managed.||Mutual funds are invested in money market funds, bonds, or stocks. REIT shares are invested in real estate assets.|
|Stock investing||Shares are traded on the stock market and can be purchased by investors.Investors own a piece of the publicly traded company.||Stock investors get shares from various companies, while REIT shares are limited to real estate.Stocks may or may not pay dividends to shareholders, while REITs are required by law to pay dividends.|
Why Should You Invest in REIT?
Amid the current pandemic, REITs don’t seem like a good investment. However, you’ll think otherwise if you consider its long-term benefits.
1. Regular earnings through dividends
Under the REIT Act of 2009, REITs must pay at least 90% of their distributable annual income as dividends to their shareholders.
Dividend payouts from REITs are guaranteed by the law, unlike when investing in property stocks (e.g., Ayala Land, SM Prime, Megaworld, Vista Land, etc.) in which companies may or may not decide to give dividends.
Investors also earn higher from REITs (with an estimated dividend yield of 4% to 6%) than government bonds and time deposits. Over time, as properties of REITs increase in value, investors can receive higher dividends.
These benefits make investing in REITs perfect for earning passive income. More so for OFWs who invest in Philippine REITs, as they’re exempted from paying the 10% income tax or withholding tax on dividends for seven years starting from January 20, 2020.
2. Capital appreciation
Another way to make money from REITs is to buy REIT shares at a low price and then sell them later at a higher price. Considering that the value of properties increases over time, REIT share prices may also grow. This means a high earning potential for REIT shareholders.
3. High liquidity
When you’re in urgent need of cash, you can easily sell all or some of your REIT shares through the PSE. Through your broker, you can withdraw funds from the sale of REIT shares.
The high liquidity of REIT shares makes investing in REITs ideal for conservative investors who want easy access to their funds.
4. Diversification of assets
Diversifying your investments is an effective strategy for managing risks. Even if you invest in only one REIT, you add multiple income-generating assets to your investment portfolio.
REITs invest in a wide range of income-generating assets. Some REITs focus on just one property type, while others operate a combination of different properties.
- Residential properties: Apartments, condos, house and lots, dormitories, etc.
- Office properties: BPO offices and call centers, commercial offices, government offices, etc.
- Retail properties: Shopping malls, grocery stores, retail shops, etc.
- Industrial properties: Manufacturing plants, warehouses, distribution centers, R&D centers, etc.
- Hospitality properties: Hotels, resorts, etc.
- Infrastructure: Highways, railroads, airports, toll plazas, parking areas, cell towers, etc.
- Healthcare properties: Hospitals, clinics, nursing homes, etc.
5. Low-price entry
Investing in REITs is a lot less expensive compared to directly buying an actual property, which can cost you at least a million pesos.
Only a minimal amount is needed to buy a REIT share. For example, AREIT is priced at Php 25.60 per share (as of October 9, 2020) with a board lot of 100. At this price point, you need only Php 2,560 to buy 100 shares of AREIT.
6. Easy way to invest
Real estate investing through direct property purchase involves a lot of work. You have to secure the necessary permits, oversee the property’s purchase and construction processes, find tenants, and manage the property’s maintenance and repairs, among many other responsibilities.
The hassles of being a landlord won’t be a problem when you invest in REITs. You simply have to buy and sell REIT shares in the stock market as you would normally do with regular stocks.
Because REITs are PSE-listed companies, they’re required to be transparent when it comes to sharing their company information. Like other types of listed companies, REITs make timely disclosures of their financial performance, share price, investment strategy, and stock information to their shareholders.
Such disclosures are made usually by holding an annual stockholders’ meeting. Other communication channels may be used for transparency purposes. For example, AREIT makes available relevant information to investors through its website.
8. Professional fund management
A REIT has an independent fund manager who’s responsible for the investment strategies. REIT investors can rest assured that their funds are professionally managed and that they’re investing in quality real estate assets.
What are the Risks of Investing in REITs?
REITs offer many advantages to investors, but they also come with investment risks. Before you start investing in REITs, consider its risks to have a more realistic expectation of the returns you’ll get.
- Like stocks, REIT share prices can fluctuate over time. Political instability, economic recession, higher interest rate, and other factors may cause the prices of REIT shares to fall.
- Depending on the REIT you invest in, if the rental demand for its properties drops, so do the REIT’s income and the dividends it will pay you.
- Some REITs own only the buildings but not the land on which they’re built, as in the case of AREIT. Investors of such REITs lose the opportunity of getting higher returns from the appreciation of the land’s value.
How to Invest in REITs in the Philippines
When a REIT is selling its shares through an IPO, you can subscribe to the IPO through the PSE EASy online platform.
How to Participate in a REIT IPO Through PSE EASy
- Open a trading account with an eligible stockbroker if you don’t have one yet.
- Access the PSE Easy website and click the Register button to sign up for a PSE EASy account.
- Fill out the online registration form, select your broker as your trading participant, and submit the accomplished form.
- Verify your PSE EASy account by clicking on the link sent to your email.
- Wait for your broker to verify your account.
- Give your consent to your broker for opening a Name-on-Central Depository (NoCD) account on your behalf. To do so, visit your broker’s website and click on the link that asks for your authorization. An NoCD account, which is a requirement for trading through the PSE, will be used to maintain your REIT shares.
- Log in to your PSE EASy account. Your PSE EASy dashboard will display a notification about any available REIT IPO. Alternatively, you can search for a specific IPO.
- Enter the number of REIT shares you want to buy.
- Click the Subscribe button.
- Check your email for your IPO subscription summary and payment instructions.
- Pay for your purchase on or before the given due date. Once your payment is processed, your shares will be credited to your stock brokerage account.
How to Buy and Sell REIT Shares Through a Broker
After the IPO period, you can purchase REIT shares like regular stocks using your stockbroker’s online trading platform.
If you don’t have a stock brokerage account yet, you should open an account with one of the brokers approved by the PSE to trade REIT securities in the Philippines. Only then can you start buying shares in a REIT and other listed companies in the PSE.
Once you have an online stock trading account, follow your broker’s instructions for placing a buy order on the trading platform. When buying shares, be sure to order the required minimum number based on the assigned board lot for the particular share.
For instance, if the board lot for a REIT share is 100, you have to buy at least 100 shares per transaction.
Complete List of Online REIT Brokers in the Philippines
Interested in trading REITs? Open an online brokerage account only with a PSE-approved broker.
Here’s a list of all brokers in the Philippines that enable investors to buy and sell REIT shares using their online platforms.
|Online REIT Brokers||Minimum Investment||Online Trading Platform|
|A&A Securities Inc.||Php 50,000||https://aa.psetradex.ph|
|AAA Southeast Equities, Inc.||Php 20,000||https://aaa-equities.com.ph|
|AB Capital Securities, Inc.||No minimum deposit required||https://www.abcapitalsecurities.com.ph|
|Abacus Securities Corporation||Php 100,000||https://mytrade.com.ph|
|Alpha Securities Corporation||Php 5,000||https://alpha.psetradex.ph|
|AP Securities Incorporated||Php 50,000||https://www.aps.com.ph|
|Astra Securities Corporation||Php 500,000||https://astraseconline.psetradex.ph|
|BA Securities, Inc.||Php 5,000||https://baseconline.psetradex.ph|
|BPI Securities Corporation||No minimum deposit required||https://www.bpitrade.com|
|Coherco Securities, Inc.||Php 50,000||https://cohercotrade.psetradex.ph|
|COL Financial Group, Inc.||Php 5,000||https://www.colfinancial.com|
|DA Market Securities, Inc.||Php 50,000||https://itrade.ph|
|Eastern Securities Development Corporation||Php 5,000||https://eastern-sec.com|
|F. Yap Securities, Inc.||Php 25,000||https://www.2tradeasia.com|
|First Metro Securities Brokerage Corporation||No minimum deposit required||https://www.firstmetrosec.com.ph|
|Globalinks Securities and Stocks, Inc.||Php 20,000||https://gtrade.ph|
|HDI Securities, Inc.||Php 25,000||https://hditrade.psetradex.ph|
|Investors Securities, Inc.||Php 50,000||https://www.investorsonline.ph|
|JAKA Securities Corporation||Php 25,000||https://jakaseconline.psetradex.ph|
|Lucky Securities, Inc.||Php 5,000||https://luckyseconline.psetradex.ph|
|Maybank ATR Kim Eng Securities, Inc.||Php 1 million||https://maybanktrade.psetradex.ph|
|Mercantile Securities Corporation||Php 5,000||http://msc.com.ph|
|Meridian Securities Incorporated||Php 20,000||https://msitradeonline.psetradex.ph|
|Optimum Securities Corporation||Php 25,000||https://optimumonline.psetradex.ph|
|Philstocks Financial, Inc.||Php 5,000||https://www.philstocks.ph|
|RCBC Securities, Inc.||Php 10,000||https://www.rcbcsec.com|
|Regina Capital Development Corporation||Php 25,000||https://www.reginacapital.com|
|Timson Securities, Inc.||Php 20,000||https://timson.com.ph|
|Triton Securities Corporation||Php 10,000||https://triton.psetradex.ph|
|UCPB Securities, Inc.||Php 10,000||https://www.ucpbsec.com|
|Unicapital Securities Inc.||Php 10,000||https://utradeph.com|
|VC Securities Corporation||Php 10,000||https://vcsecurities.biz|
|Wealth Securities, Inc.||Php 20,000||https://wealthsec.com|