Philippine Property: $15 Billion Can Be Packaged Into REITs, Says JP Morgan

By September 19, 2016Property News
Rodrigo Duterte

Real estate developers have been doing very well Since Rodridgo Duterte became the President of the Philippines, outperforming the broader PSE Index by 9%.

Investors believe that the Philippines will bring property REITs to life as the new government agreed to review the current stringent regulations installed under previous President Benigno Aquino III‘s watch. Under the current regulations, real estate companies wanting to establish a REIT structure must pay 12% value-added tax on the total fair market value of the REIT. The existing law is “focused on the potential loss of tax revenue streams,” according to JP Morgan analyst Jeanette Yutan.

If the existing law governing REITs becomes more lenient, it will be hugely beneficial to real estate developers because they can free up capital into new investments. “We estimate that there is at least US$20bn worth of commercial real estates that are ready to be offered for sale to REITs,” wrote the analyst, adding:

At least two-thirds of the commercial assets, in our estimate, i in the retail category, reflective of the major PH economic driver, which is private consumption; Retail is also the most mature versus other segments.

Geographically, Metro Manila still hosts the lion’s share of the assets (~70-80%) given the advanced economic development level versus the other major island groups.

However, only very few developers have these kind of assets, “reflective of the overall business landscape in the Philippines.”

SM Prime Holdings (SMPH.Philippines) has $13 billion of the $15 billion suitable assets for REIT, estimates the bank:

The company enjoys undisputed dominance in the retail segment which >50% market share with a geographically dispersed portfolio of retail malls across the country.

SMPH’s portfolio of retail assets, in our view, is of top-notch quality in terms of maturity and operating metrics – we estimate that the company has 27 mature malls with operational history greater than the maximum payback period of 10 years, and operates at >90% occupancy rate.


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