How to Invest in REITs in the Philippines: A Quick Guide

Real estate is a very profitable investment, but many middle-class Filipinos stay away from it because they cannot afford the high purchase price and the recurring costs of property ownership.

 

But, did you know that you can now invest in real estate without having a lot of money?
Yup, you heard it right!
In this blog post, I will teach you what is REIT and how to invest in REITs so that in this way, you can now start investing in real estate.

 

What is REITs?

how to invest on reits

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors.

These real estate companies have to meet a number of requirements to qualify as REITs.

Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.

REITs provide an investment opportunity, like a mutual fund, that makes it possible for everyone to benefit from valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF).

The stockholders of a REIT earn a share of the income produced – without actually having to go out and buy, manage or finance property.

 

How does a company qualify as a REIT?

To qualify as a REIT a company must:

•Invest at least 75% of its total assets in real estate

•Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate

•Pay at least 90% of its taxable income in the form of shareholder dividends each year

•Be an entity that is taxable as a corporation

•Be managed by a board of directors or trustees

•Have a minimum of 100 shareholders

•Have no more than 50% of its shares held by five or fewer individuals

 

What assets do REITs own?

Buildings

REITs invest in a wide scope of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels. Most REITs focus on a particular property type, but some hold multiples types of properties in their portfolios.

 

What do REITs do to make money?

Most REITs operate along a straightforward and easily understandable business model: By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends.

REITs must pay out at least 90 % of their taxable income to shareholders—and most pay out 100 %. In turn, shareholders pay the income taxes on those dividends.

 

Why invest in REITs?

REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation.

Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns.

 

1. 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.

 

2. 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.

 

3. 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.

 

4. Regular Income through dividends

Under the REIT Act of 2009 of the Republic of the Philippines, 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.

 

6. 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.

 

7. 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.

 

How can I invest in REITs?

An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).

A broker, investment advisor or financial planner can help analyze an investor’s financial objectives and recommend appropriate REIT investments.

 

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

1. Open a trading account with an eligible stockbroker if you don’t have one yet.

2. Access the PSE Easy website and click the Register button to sign up for a PSE EASy account.

3. Fill out the online registration form, select your broker as your trading participant, and submit the accomplished form.

4. Verify your PSE EASy account by clicking on the link sent to your email.

5. Wait for your broker to verify your account.

6. 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.

7. 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.

8. Enter the number of REIT shares you want to buy.

9. Click the Subscribe button.

10. Check your email for your IPO subscription summary and payment instructions.

11. 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.

 

Best Performing REITs You Can Invest In Right Now

Code REIT / REIT ETF
AREIT Ayala Land REIT
DDMPR DoubleDragon Properties REIT
RWR SPDR Dow Jones REIT ETF
USRT iShares Core U.S. REIT ETF
IYR DJ US Real Estate iShares
AOX.DE Alstria Office REIT AG
AMT American Tower Corp.
DLR Digital Realty
CCI Crown Castle International
SBAC SBA Communications Corp.

 

If you don’t want to trade individual REIT stocks, it can make a lot of sense to simply buy an ETF or mutual fund that vets and invests in a range of REITs for you. You get immediate diversification and lower risk. Many brokerages offer these funds, and investing in them requires less legwork than researching individual REITs for investment.

 

Reference

National Association of Real Investment Trusts. “Why Invest in REITs.”https://www.reit.com/investing/why-invest-reits. Accessed June 13, 2021

 

Leave a Reply

Your email address will not be published. Required fields are marked *