Real Estate Investment Trust (REIT) Update In The Philippines

Here is an article excerpted from the website-post of the Phil. Stock Exchange dated last May 28, 2012 which tells the status of REIT in the Philippines. This news are very informative for those who are planning to invest their funds with these kind. of security.

PSE revives discussion on REITs

 

     The Philippine Stock Exchange (PSE) announced today that it is currently reviving talks with industry and investment stakeholders to address the current issues on the Real Estate Investment Trust (REIT), with the goal of finding a workable framework acceptable to all parties. Just recently, the PSE had successfully organized a public forum to discuss the various issues on the REIT and confirm the benefits of the REIT to the country. Key representatives from the government, including Senator Edgardo Angara (author of RA 9856- REIT Law), as well as the various representatives from the industry and investment community participated in the forum. “Based on the feedback that we received during the forum, as well as the various queries from potential REIT investors, we gather that there is still overwhelming interest in investing in REITs in the Philippines,” PSE President and Chief Executive Officer Hans Sicat said. “When we get the REITs listing going, we estimate that the Philippines can generate at least $2.4 billion in new investments from the private sector, because of the additional capital that the REIT structure can provide. It is quite unfortunate however that all the potential issuers have decided to defer their REIT plans indefinitely,” he added. The REIT law was passed in 2009, and subsequently, implementing rules were issued by both the Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR) last year. However, the interest in participating in the REIT from any of the industry players have been dampened by the stringent rules related to the minimum public ownership, as well as the imposition of value added tax or VAT and the requirement of escrow. Under the revised SEC rules, the minimum public ownership (MPO) required for a REIT to be entitled to the tax incentives is at least 40% in the first year, which should be increased to 67% by the end of the 3rd year. The industry players find the increase in the MPO to 67% unappealing, because this merely creates a huge market overhang. REIT issuers raised concerns on being forced to unload prospectively a significant equity stake in the REIT company as it is uncertain whether or not the domestic market may be able to absorb this in the future. At the same time, if these REIT developer or sponsors will be forced to retain a very small stake in the REIT company, Philippine REIT issues will become less attractive to foreign investors. This is because of the possibility that the interests of the REIT and its sponsor may no longer be necessarily aligned, therefore increasing the likelihood for the Philippine REITs to fail in the future. The BIR further imposed a requirement that REIT companies have to set aside in escrow an amount equivalent to the tax incentives and this amount will be forfeited in favor of the government should the REIT company fail to increase the MPO to 67% after the 3rd year. There have been concerns raised on how this requirement can be aligned with the requirement of the law to declare up to 90% of its yearly earnings as dividends. The other issue pertains to the imposition of VAT on initial asset transfers to the REIT. In order to set up a REIT, the potential issuer must form a REIT corporation to which the issuer will have to transfer its REIT-able assets. In previous years, such transfers were tax free and were not subject to any form of tax. Recently however, the BIR decided to subject these transfers to VAT. The imposition of the VAT, if based on the fair market values of the properties, may dampen the yields on Philippine REITs, further making them uncompetitive compared to regional counterparts. According to PSE, the imposition of VAT may likely be more acceptable to the issuers if the BIR can clarify that the basis for its VAT computation would be the current “assessed” values of the properties to be transferred, the same asset valuation appearing in their real property tax declarations. “While we understand the need of the national government to protect its revenue streams, we believe that over the long term, the benefits of the REIT to the whole economy will far outweigh its perceived negative short term effects on the government’s revenues. We also believe that given the improved ratios of the country, any perceived reduction in upfront revenues should not significantly impact on the objectives of the government at the fiscal front. We hope we can find a reasonable middle ground that addresses the concerns of both sides,” Mr. Sicat said.

For more helpful information regarding this matters, you may visit this link: http://www.pse.com.ph/REIT/