Government may let foreigners exercise property rights on real estate assets

Government is drafting a policy that will allow foreign companies to hold on to real estate assets without violating the constitutional prohibition against land ownership by foreign entities.

Socio-economic Planning Secretary Dante Canlas said the Arroyo administration will include the policy in its urgent measures intended to address the short-term impact of the economic disruption caused by the US-Afghanistan war.

According to Canlas, the policy is part of the effort to give troubled companies a way out of their financial crisis by allowing foreign asset management corporations to buy non-performing assets.

"The proposal to allow asset management companies, especially foreign ones, to own property has been there for a while, we just haven’t thought of a way to do it yet," Canlas explained. "But now there are several proposals under study and it is possible."

According to Canlas, several "instruments" are being considered as an alternative to outright ownership although he didn’t specify what sort of instrument will allow this.

"One of the things under study is to develop a hybrid leasehold that would allow asset management companies to sort of hold on to a property while it is being rehabilitated and there need not be any change in ownership until the company unloads the asset," Canlas explained.

This meant that banks owning a portfolio of problematic real properties, for example, would continue to own the property until they are sold by the asset management firm.

In the meantime, the asset manager would hold the "lease" on the property, rehabilitate it and set it up for eventual sale.

However, Canlas said that ultimately, a legislative measure would have to be passed by Congress to provide a firmer legal basis for this instrument without violating the provisions of the Constitution.

"In the meantime, we are looking into the possibility of an interim measure that would make this possible while the law has not been passed to make it permanent," he said.

Officials said one of the main concerns of foreign investors is the constitutional prohibition against foreign land ownership. Although they are allowed to enter into long-term leases, they could do little else to the land they are leasing, aside from occupying it.

The instrument currently in development is a leasehold template that will allow foreigners to exercise almost the same rights of ownership that Filipinos enjoy.

The Department of Finance earlier proposed a hybrid lease that will allow foreigners to encumber their leased land and use it in various other transactions.

It will also allow them to mortgage land based on the economic value of the leasehold right. The lease owner will also be allowed to sell the leasehold right up to a certain percent of the value of the entire lease.