By early 2010, the Philippines should already have an official framework for joint property investment after the ratification of the country’s proposed new rules on the real estate investment trust (REIT), which was done at the start of the month of October, Yet, there are people who are concerned that the said rules are somewhat over-zealous in some areas.
According to Milton Cheng, the Hong Kong-based head of REIT practise in Asia-Pacific at Baker & McKenzie, the Filipino model has done a good job in choosing the finest features of the other comparatively new REIT frameworks, like those in Singapore and Hong Kong.
However, one odd aspect of the country’s rules is that its Securities and Exchange Commission will not only oversee the REIT managers, which is usually the practise, but it will also supervise the property managers.
In the said proposals, the governance of balances and cheques of internal corporate – like the independence requirements as well as the requirement of having independent directors – are copied at the level of the property manager.
"That’s something we’ve never seen anywhere else", states Cheng. He also said that in many other areas, it is the responsibility of the REIT manager – as part of the REIT portfolio’s overall management of the – to watch over the property manager’s performance and to keep him “on the straight and narrow”.
Philippines’ market players – both the intermediaries and developers who help to put together the REIT deals – feel that this requirement could mean additional constraints on the function of the property management than the property market would usually expect, Cheng says.
In Singapore and Hong Kong, there are also securities-licensing requirements; however, they are at the level of REIT manager, not the level of the property manager. Typically, those rules require the property management arrangements’ terms to be always at arm’s length and are properly disclosed. Yet, this is not normally viewed as necessary for the governance-type rules of separate corporate to be enforced on property managers, states Cheng.
He adds that most often, investors believe that the sponsor of REIT – the developer who put properties to the REIT – really have a job well done in managing the property at the asset level. Investors also like the sponsor to continue in doing so.
Furthermore, an issue is raised by the requirement whether the present framework in the securities regulatory is suited to regulate the property managers as well as the REIT managers. "In theory, it always sounds good to have more levels of cheques and balances“, says Cheng, "but in practise, to make the regulation effective and user-friendly, you need to have the right set of rules and guidelines tailored to the particular product and its operating environment, administered by regulators with the relevant experience and knowledge”.