How to Invest in REITs in the Philippines 2024

How to Invest in REITs in the Philippines 2024

How to Invest in REITs in the Philippines? Is it a good investment and how risky is it to invest in one? I’ll share my experience in this article – the good, the bad, and the ugly.

For starter, investing in reits in the Philippines involves shelling out tons of cash because property prices are quite expensive. Fortunately, real estate developers and financial institutions have found a solution to make property investing very much attainable to more people.

What are REITs in the Philippines?

• Real Estate Investment Trust or known as “REITs”, is a unique asset class of investment in the market today. It specializes in income-generating properties, making it a stable form of asset.

• REITs can be a public or privately listed stock corporation which owns properties that generate income. With REITs, you will buy stocks of real property companies. It works like investing in stocks but the focus here is real estate.

• It is similar to a mutual fund. But with REITs, the income is being generated from real estate properties that have rental income or any derivatives of a real estate project.

• These income generating properties are offices, apartments, hospitals, resorts, shopping malls, hotels, or any rental properties that produces income on a recurring basis.

• The portfolios of REITs offer a cheaper or lower investment amount compared to buying an actual property. So, buying or selling your shares is so much easier. This makes them accessible for everyone to invest in real estate.

• REITs also make it easier for people who do not have sufficient knowledge, edge, resources, or capital to experience and be exposed to investing in real properties.

• REITs help people who want development and growth in their investment portfolios, let’s say, a span of 3 to 5 years.

• One advantage of investing in REITs is its liquidity.

If you are a conservative investor, it is more advisable for you to invest in liquid real estate assets just like REITs. Why? Simply because you can buy and sell it when the need arises, unlike with real estate properties that require some time and expenses to run.

• When investing in REITs, if you’re suddenly in need of money, there is an option to withdraw funds from your investment within a few days (depending on the platform used).

• Most real estate properties being sold are big and you need the effort to look for buyers who can spend a huge amount on houses and lots. So, it’s really a great choice if you would be investing in more liquid real estate assets such as REITS.

• Similar to any investment vehicle, investing in REITs still has risks involved. You earn from the rental income of properties that the REIT manages.

How do REITs make money?

REITs get their capital by initial public offering (IPO). Similar to stocks, REITs are managed like a stock portfolio.

REITs rent out, lease and sell properties. The company will collect rent income on properties they own. This is how they generate income, and out of this, they then pay back investors through dividends.

One of the benefits of investing in REITs in the Philippines is that they are required to distribute 90% of their annual income to shareholders.

The distribution of 90% in the form of dividends makes it a good source of passive income but the downside here is that you can’t expect too much capital appreciation, meaning there wouldn’t be too much of an increase on the initial price you bought it. For example, I bought MREIT at Php 11.96 per in 2022. As of April 20, 2024, the price of MREIT has measly increased to Php 13.10 (sometimes, it even reaches Php 12) so there was hardly any movement for the past 2 years.

Moreover, the cash dividend per share isn’t that volatile too. For example, when I purchased CREIT, I received a cash dividend of 0.051 per share on May 15, 2023. Fast forward to Jan 23, 2024, the cash dividend I received has even dropped to 0.049 per share.

So does this make REITs disadvantageous and unprofitable? Well, not really because the good news is that I have consistently received dividends from all my REITs for the past 2 years. Below are screenshots of the notifications I get when I am entitled to dividends.

NOTE: Let me reiterate that I am not sponsored by COL financial. I am merely sharing my experience so you may gauge if this suits your investment appetite or not.

Like shown in the photos above, REITS are a good passive cashflow assets. They are required by the REIT law to declare dividends on quarterly basis.

In my opinion, most people don’t buy REITs with expectations of capital appreciation. It can definitely happen at some point but you shouldn’t expect that to be the norm because they are required by the REIT law to give up 90% of their earnings as dividends – meaning, with little money plowed back to the company, there isn’t much room for upsiding. REITs are instead meant to be income-generating investments just like to preferred shares.

How can I invest in REITs in the Philippines 2024?

Just like other businesses, once you start investing in REITs, you need to prepare for some capital. It is not that risky because it does not require a contract and obligation, unlike when buying a real property.

What to consider when Investing in REITs in the Philippines

Before delving into REITs, you might want to consider the following:

• Location of the properties. Different property locations have varying property values especially those in Metro Manila. Similar to investing in stocks, learn about the planned infrastructure projects of the government first so you can get a glimpse of what locations are going to thrive in the future.

• Company’s track record and reputation. Their reputation and credibility is enhanced if their history of past real estate projects in terms of capital appreciation and rental income has been steadily growing.

• Tenant occupancy and the length of their lease agreements. For example, if a REIT has 100% occupancy rate for the next 20 yrs and if you put money there, you are pretty much guaranteed that you’ll have income for the next 2 decades.

Online REIT Brokers in the Philippines

To invest in REITs in the Philippines, you have to go online and find a platform that offers REITs, then choose a trusted and worthy REIT company to invest with.

As of this writing, here is the list of online REIT brokers in the Philippines that allow investors to buy, sell and trade REIT shares through their online platforms.

Is Investing in REITs in the Philippines worth the risk?

Remember, real estate performance is greatly influenced and dependent on the performance of the economy. The majority of businesses and offices nowadays are renting office spaces, condos, and buildings which is great but you may still want to observe and research about factors that may affect your dividend-earning potential such loss of jobs, bankruptcies, and business shutdowns.

Another thing worth noting is if the tenants are able to pay rentals or not. If no payment is collected then that may affect a REIT investor’s earnings. Low real estate earnings will eventually lead to low dividends so before investing, you still need to conduct due diligence as REITS are still stocks and inherent risks still come with it

These are my takes on REITs in the Philippines? How about you? Are you interested in investing in REITs despite the boom and bust cycle our economy is facing today?

References:

https://www.reitphilippines.com/online-reit-brokers/

https://kittelsoncarpo.com/philippines-tax-talk-understanding-the-reit-act/#

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