With lower minimum public ownership requirements and value-added tax exemptions, will REITs finally take off this year? Real estate players hope so.
Real estate industry players are eagerly anticipating the revised implementing rules and regulations of the Real Estate and Investment Trust (REIT) Act of 2009, optimistic that these would kick-start the REIT industry in the country.
Drafted during the Macapagal-Arroyo administration, the REIT Act of 2009 aims to “promote the development of the capital market, democratize wealth by broadening the participation of Filipinos in the ownership of real estate in the Philippines, and use the capital market as an instrument to finance and develop infrastructure projects.”
REITs are publicly listed corporations that own and operate income-generating real estate assets like office spaces, apartments, condominium complexes, hotels, warehouses, malls, and roads.
There are three types of REITs: equity, mortgage, and hybrid. Equity REITs, earn money from rental payments, mortgage REITs earn through interest payments on mortgages while hybrid REITs are a combination of both.
Put simply, REITs provide an opportunity for Filipinos to invest in the real estate market without owning actual property; this option has its advantages. Compared to physical property, REIT investments are liquid; one can buy and sell REIT shares in real time, as these trade like stocks. REITs also require smaller cash out compared to acquiring a home, for example.
Unfortunately, response to the REIT Act has remained lukewarm over the years due to certain regulations.
For instance, gains resulting from the transfer of assets into REITs are subject to a pricey 12 percent value-added tax.
The existing version of the law has also set the minimum public ownership of such trusts at 40 percent for the first two years of their listing and 67 percent thereafter.
These stringent REIT rules were imposed by the Aquino administration to prevent entities from taking advantage of the tax incentives. On the other hand, the VAT, ownership structure, and perceived lack of management control became industry issues.
Things are looking up for the industry this year, though. The Securities and Exchange Commission has agreed to lower the minimum public ownership of REITs to just 33 percent. The Bureau of Internal Revenue has also clarified that initial transfers of property to REITs are exempt from VAT as provided by Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act.
Alliance Global Group Inc. (the parent company of Megaworld Corporation), Ayala Land Inc., and Robinsons Land Corp. have expressed interest in setting up REITs, subject to the review of its final terms and conditions.
Fund managers from the US and Singapore are likewise keen on investing in REITs in the Philippines due to the bright real estate outlook in the country.
Philippine Stock Exchange (PSE) President and CEO Ramon Monzon believes REIT listings are well underway since the government is already working to remove major stumbling blocks hindering REIT implementation.
The PSE is set to release guidelines for REIT issuers to ensure that the funds raised from REITs would stay within the Philippines. Department of Finance officials have expressed concerns that gains from REITs might be invested elsewhere.
Meanwhile, Manulife Asset Management and Trust Corp. (MAMTC) recently launched its own REIT fund, the Asia-Pacific REIT Fund of Funds, which allows clients to invest in exchange-listed REITs within the Asia-Pacific region.
In an interview, MAMTC CEO Aira Gaspar said, “The securitization of the real estate market is still in its growth phase, underpinned by the increasing trend of investors embracing cross-border assets, as well as the growth in listed REIT markets over the past 15 years across Singapore, Hong Kong, and Australia.”
“We believe that investments in REITs can continue to provide diversification benefits to traditional portfolios consisting of fixed income and equity,” she added.
The Asia-Pacific REIT Fund of Funds is available in US dollar and Philippine peso denominations.
Source: Philippine Star
