Revised reit rules lifts regulatory hurdles

Carlo Lorenciana

REAL Estate Investment Trust (REIT) companies could finally take off, now that the government implements revised rules favorable to the capital market.

“The full implementation of REITS places the Philippines at par with other Asian economies that have fully developed capital and real estate markets,” Colliers International Philippines said in a statement.

On Monday, Jan. 20, 2020, the government bared the amended REIT rules on taxation and ownership.

REITs have been available to investors since a 2009 law was passed but the market has failed to take off more than a decade after because of high public ownership requirement and transaction taxes discouraged property firms.

REITs manage real estate assets that regularly generate profits, which are distributed to shareholders as dividends.

Under the law’s revised rules, REITs will now be allowed to maintain control of their firms and enjoy tax breaks to attract fresh capital to sustain property market growth.

REITs will only be required to sell 33 percent of their companies to the public, down from the previously mandated 40 percent.

According to the Department of Finance, the transfer of assets from the property firm to the REIT company will now be free of value-added tax.

Ayala Land Inc., among the country’s top developers, said last year that it was looking to list a US$500 million REIT but it didn’t give a timeline.

REITs, according to Colliers, will drive innovation in the real estate projects, which should eventually benefit Filipino investors and end-users.

“In our opinion, now is the most opportune time to launch REITs as the Philippine property market has been on an upswing,” said Joey Bondoc, Colliers senior research manager.

Bondoc said REITs are likely to attract more foreign investments into the country.

“REITs should also stoke the construction and infrastructure sectors which have significant multiplier effects to the economy,” he said.

The Philippines enacted the REIT law in 2009 to democratize wealth and attract more foreign investments into the property sector.

But the launch of REITs was stalled by some regulatory roadblocks, including taxation and high ownership requirement issues.

The listing of REIT companies on the stock exchange creates “a secure opportunity for small investors to participate in the growth of property development in the country,” Finance Secretary Carlos Dominguez III said.

Securities and Exchange Commission chairman Emilio Aquino said REITs allow Filipinos to invest in the real estate market without owning actual property or the disadvantages of high transaction costs and illiquidity.

“They also help investors achieve better returns or volatility outcomes by allowing property developers to diversify their portfolios,” Aquino said.

Philippine Stock Exchange (PSE) president Ramon Monzon said said REITs are a welcome addition to the PSE’s product offerings as they will help the market become more competitive in the region.

“Potential issuers and investors, both retail and institutional, have been looking forward to the introduction of REITs in the country given the benefits of both listing and investing in this new asset class,” he said.