REIT law changes pushed to entice investors

Five years after the enactment of the Real Investment Trust (REIT) act, no one has yet participated in the scheme but it is being hoped that the law would finally be amended in favor of investors before the term of President Benigno Aquino III ends in 2016.

REIT is a closed-end investment company listed in the stock exchange and invests directly in real estate. What makes it ideal is that it has special tax considerations and high yields.

In neighboring countries within Asia, REIT is known as an effective investment scheme in opening real estate values within a country and stimulating capital.

In 2009, Congress of the Philippines passed into law the Real Investment Trust Act, which would have supposedly put in place the country’s REIT market.

It has already been five years since the passing of the law and no one has yet participated in the scheme.

Industry sources shared the same sentiments regarding what made the local REIT scheme unattractive to investments. These are mainly tax and public float issues.

First, the Bureau of Internal Revenue (BIR) imposed an additional cost of 12 percent for property owners who want to corporatize their income-generating assets into a REIT, while Securities and Exchange Commission (SEC) increased the minimum public ownership (MPO) of REITs sharply from 33 percent to 67 percent in the third year after its listing.

SEC Chairperson Teresita Herbosa said in an interview that the corporate regulatory agency is currently conducting a study on how the law can be finally improved and this will be presented to Congress in the second week of October.

Herbosa pointed out that the objective of the study is to “already to look even to the other features of the law because there might be a room for improvement,” which would include the option to trim down the public float requirement up to 40 percent.

“[The study will be done and presented in] October. We’re getting some help from our partner organization to provide us some technical assistance,” Herbosa said.

Asked if the law can be amended before the term of Aquino ends, Herbosa said “yes.”

“It’s up to lawmakers. They can either amend the entire one but they just amend certain provisions. I, as a government agency, I just want to present options to them. That if in case if you already going to amend the law, you might want as well look into these other things,” she further said.

Asked if BIR would support implementing REIT rules, BIR Commissioner Kim Henares only said “same stance as before”.

It was reported a few years ago that BIR will keep the current rule on REIT which requires large public ownership before availing of tax perks and incentives.

Economist Astro del Castillo of securities firm First Grade Finance, Inc. said it would be better if the law would be amended before 2016 before politicians get busy for the May, 2016 presidential election.

“It is possible but the sooner it can be amended the better while they [politicians] are not yet destructed with the election,” Del Castillo said.

Del Castillo explained that the amendment of the REIT law will be better for the property market, which is currently on the uptrend. This, according to him, would likewise boost the activity in the country’s capital market.