Government issues amended REITs rules, regulations

MANILA, Philippines — The government has issued the new implementing rules and regulations (IRR) of the Real Estate Investment Act of 2009, a move seen to spur the growth of the sector.

With the issuance of the IRR, the REIT industry is seen to finally take off, Securities and Exchange Commission chairperson Emilio Aquino said.

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.

The Department of Finance, SEC, the Bureau of Internal Revenue and the Philippine Stock Exchange launched the amendments to the regulations in a joint signing ceremony yesterday.

According to the DOF, the amendments were introduced in response to concerns of stakeholders while ensuring that the gains from the implementation of the law would redound to the benefit of Filipinos.

“We took on this challenge but had to be sure that the tax incentives would not be prone to abuse. We had to be very clear in our revenue regulations. This is why we needed to recast the existing revenue guidelines,” said Finance Secretary Carlos Dominguez.

Dominguez said the funds to be raised from REITs must be reinvested exclusively within the country’s real estate and infrastructure sector.

“The reinvestment requirement is the regulatory framework which ensures that the funds invested by Filipinos will stay in our domestic economy and will contribute to the improvement of our country’s infrastructure, rather than the benefits being squirreled away to other markets and countries,” Dominguez said.

Aquino said the amendments were in line with the government’s efforts to “democratize wealth by improving the participation of Filipinos in the real estate market.

The revised IRR lowered the minimum public ownership – a contentious issue in the original IRR – from a 40 percent minimum public ownership in the first year of listing to  at least 33 percent of the outstanding capital stock.

“To encourage the formation of REITs, the SEC lowered the minimum public ownership requirement in line with the provision of the REIT Act that a REIT must have at least 1,000 public shareholders each owning  at least 50 shares of any class of shares and in aggregate, at least one third of the outstanding capital stock,” according to the REIT primer.

Under the amended listing rules, the Philippine Stock Exchange (PSE) shall impose a six- month trading suspension if a REIT fails to maintain the required public ownership level. If it remains non-compliant after the suspension period, the REIT shall be automatically delisted.

Meanwhile, the BIR amended Revenue Regulations 13-2011 to exempt from the 12 percent VAT the transfer of property to a REIT in exchange for its shares, provided the exchange will result in an acquisition by the transferor of at least 51 percent of the outstanding voting capital stocks of the transferee.”

 PSE president Ramon Monzon said “REITs are a welcome addition to our product offering as they will help our market become more competitive.”

Monzon said many companies had also expressed interest in the REIT landscape. The first listing may happen within the first quarter.

Congress passed the REIT Act in 2009 as it was deemed an important vehicle to generate more investments especially for real estate companies.

The implementation, however, was stalled since 2009 because of tight taxation and issues on the minimum public ownership requirement.