The Philippine Government is readying to pass legislation enabling a domestic listed property trust (LPT) market after more than two years of advice from external professionals including Melbourne based property consultant Ken Atchison.
Atchison, who heads specialist property consultancy Atchison Consultants, has advised the Filipino House of Representatives and the country’s stock exchange to introduce conservative LPTs that focus on the basics of property – rental income and capital growth – rather than financial engineering.
The Philippines Government aims to ratify the legislation in December before concentrating on the 2010 national election. Atchison views the Philippine property sector as part of the Asian growth story and believes that a domestic LPT sector would benefit local investors. “The Philippines looks attractive. It has very positive demographics – a young population, a sound legal system. But there is some political unrest. It’s small relative to China and India but in our view it will be one of the jewels in the crown in the next decade. “
“Our interest in being involved is that we are knowledgeable in this space and we can see an opportunity to expand outside Australia.” But an improvement in corporate governance was desirable, Atchison said. He has advised the government to steer clear of instruments such as stapled securities, which usually bind an LPT with a related property development company. Atchison also warned legislators of the threat of ‘regulatory arbitrage’: overseas investors buying Philippine assets and listing them on a foreign exchange.
“A jurisdiction will compete for business. Cross border REITs do exist and one day other countries will tap into the Philippines property market if it hasn’t made its own REITs.”
“If the Philippines don’t do something, international investors will find a way to buy its properties and list them in vehicles in Singapore, Hong Kong or Australia, which is not advantageous to the economy of the Philippines.” Since Filipinos “understand property more than companies,” a domestic LPT market could provide them with an entry point to the stockmarket, Atchison said.
A number of investment banks and property firms, such as UBS and CB Richard Ellis, are already active in the country. Vietnam and Indonesia are also considering whether to establish domestic LPT sectors.