PSE sees urgent need to revive REIT law

MANILA, Philippines - Amid a bullish stock market and the continuing economic growth of the country, the Philippine Stock Exchange (PSE) sees the need to revive talks on the implementation of the Real Estate Investment Trust (REIT) Law.

PSE president and CEO Hans Sicat told reporters on the sidelines of the Chamber of Thrift Bank (CTB) general membership meeting over the weekend that the PSE has already sounded off this matter to the Department of Finance (DOF) and Bureau of Internal Revenue (BIR).

“Now that the Philippines has reached an investment grade status, we are bringing this back up to the discussion level at the capital markets development council, a private-public forum chaired by the secretary of finance and during the last meeting we did tell him perhaps the pressure to actually maintain and raise taxes on the fiscal side is a little bit less. Therefore we are appealing to take this back up, because we think what will take a REIT product to go is basically retraction at the very least the tax requirement. It would depend on how the fiscal authorities look at it,” Sicat said.

“If you have a tax structure that is not competitive with the rest of the region, you are essentially going to have a situation will nobody will take the product. That exactly what happened,” Sicat  said.

Asked why they are pushing for the REIT implementation, he said “it was not an attractive product under a current situation and we have given it enough time.”

He said there is also no need to amend the law to relax some stringent provisions of the REIT law.”You probably don’t have to. You can make it more certain if you just amend the IRR,” he said.

Sicat earlier cited the stringent tax rules for REITs which include a 12 percent value-added tax on transfer of assets and a 30 percent income tax rate.

Some property firms that earlier expressed interest in listing REITs turned to other funding sources available to them due to the mentioned conditions that will be imposed on REITs.

Sicat also noted the REIT Law failed to attract issuers after implementation.

Another contentious provision is the requirement that the REIT firms must have a 40 percent minimum public float in the first two years from listing and increase this to 67 percent by the third year. The private sector wanted the requirement brought down to 33.33 percent.

Sicat said the initial levels required in the Philippines are already higher than other REIT frameworks in the region, based on a comparative study that includes Singapore, Malaysia, Hong Kong, Thailand, South Korea and Japan, as well as those in Australia, the US and the UK.

The rules of the BIR state that REITs could avail of tax incentives if they maintain the required minimum public ownership and allocate to shareholders at least 90 percent of their distributable income.

REITs are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses and shopping centers.