REIT implementation likely next year

MANILA, Philippines — The much awaited implementation of the Real Estate Investment Trust Law (REIT) may finally happen next year with the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) now threshing out the details. 

PSE president and CEO Ramon Monzon said the bourse would soon issue guidelines for REIT issuers to ensure that the funds raised from the REIT would stay in the country.

 “Finally we’ve resolved the issues on the REITs. The VAT issue was already addressed by the TRAIN Law so that the REIT is not subject to VAT,” he said.

Monzon said Finance Secretary Carlos Dominguez just wanted to be assured that the funds raised from REIT would remain here. 

Toward this end, the PSE and the SEC agreed to soon release guidelines to ensure the implementation of this provision.

 “We will make it a requirement for anyone who does REIT to keep the funds here. We will include that in the listing rules,” Monzon said.

REIT is deemed a very important vehicle to generate more investments especially for real estate companies but was stalled by tight taxation framework.

Companies that own and operate income-generating real estate assets are considered REIT companies. These companies include offices, apartment buildings, hotels, warehouses, shopping centers and highways.

It provides investors regular income and long-term capital appreciation like mutual funds.  

In December 2009, Congress passed the REIT Act but none of the major property developers participated with their prospective offerings amid issues on ownership and taxation on asset transfers.

For instance, the government subjected the transfer of assets into REITs to taxation and slapped a 12 percent rate on additional income generated. 

It also set the minimum public ownership of such trusts at 40 percent for the first two years of their listing and 67 percent thereafter.

The Aquino government had imposed these stringent REIT rules to prevent entities from taking advantage of the tax incentives.

Incentives under the REIT Act were expected to translate to losses of P10 billion for the government, according to the previous administration. 

Industry sources said many are already waiting for better rules on REIT. 

Monzon said this would definitely help improve liquidity in the market especially now that the local bourse is badly in need of more volume.