Explaining REIT here, right now
What is a real estate investment trust? An expert answers FAQs
AReal Estate Investment Trust or REIT is not something new but its significance became more pronounced as real.estate companies began to ramp up their REIT portfolio or began to offer this among their products.
For those who are not deep into the real estate industry but want to find new revenue streams for their money, REIT is becoming an attractive proposition. In fact, some of our country's top developers such as Ayala Land, Filinvest, Megaworld, SM, Double Dragon, etc. are now promoting their REIT offerings. But before you or anyone you know dive into this pool, be equipped with the knowledge, as the right information spells between doubling your profits or losing all your hard-earned money.
Manila Bulletin Property Living reached out to Kash Salvador, the director and head of Investments and Capital Markets of leading property management firm Santos Knight Frank to give us the basics of what REIT is all about. We gathered from our readers some questions they may have before they go into REIT. If the timing is right for REIT, then learning the REIT information is the right way to go.
1. In a nutshell, what is REIT?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances incomegenerating real estate as
'REIT democratizes real estate investments as it allows anyone to invest on real estate assets without having to spend a large sum of money which can be ideal today.'
sets. Modeled after mutual funds, a REIT company consolidates the capital of investors and this allows investors to invest on real estate assets without having to fully acquire them.
2. News of different developers offering REIT is big news. Why now for these companies?
Developers recognize REIT as a means to generate new capital to invest and develop new real estate assets. Since the creation of the Philippine REIT framework in 2009, developers have finally agreed to the terms in the framework in 2020 that have addressed concerns on the taxation and Minimum Public Ownership (MPO).
The REIT allows the developer to secure new capital for new investments and developments without having the risk of defaulting when taking out a loan or paying up the maturity when floating a bond.
The assets included in the portfolio of the REIT have a stable revenue stream which will provide the developer a stable return on their investment minus the responsibility of handling the day-to-day operations
of the assets as this will be managed by the in-house property management of the REIT
The developer can still own majority of the real estate asset after it has been consolidated into the REIT
The stable performance of REIT which was pioneered by Ayala Land (AREIT) prompted other developers such as Double Dragon (DDMPR), Filinvest (FILREIT), Megaworld (MREIT), and SMDC to venture in the investment class.
3. Is the pandemic a good time to be involved with REIT? Or should I wait after the pandemic ends?
REIT democratizes real estate investments
as it allows anyone to invest on real estate assets without having to spend a large sum of money which can be ideal today, as several people are under financial distress while also recognizing the need for passive and additional cash flow in times of uncertainty.
With REITs just starting out in the country, this is a good timing for potential investors to capitalize on cheaper stock prices with the increased potential for higher capital gains.
Investing in REIT can also give an investor a steady stream of passive income as REIT companies are required to distribute earnings to its investors through dividends.
Since the assets in the REIT portfolio are stable income generating assets, anytime would be a good time to invest in REITs as it provides guaranteed returns to its investors. As long as the existing and future assets of the REIT will be able to deliver a stable and sizeable income then it can be considered one of the safest investments to get into.