PSE still pushing for REITs implementation

MANILA, Philippines - The continued delay in the full implementation of the Real Estate Investment Trusts (REIT) is estimated to result in lost opportunities for investments worth at least $2.4 billion.

Philippine Stock Exchange (PSE) president and chief executive officer Hans Sicat said yesterday there is a huge amount of investor interest in the product.

“We are aware of the competitive landscape, but it is quite unfortunate however that all the potential issuers have decided to defer their REIT plans indefinitely,” Sicat added in press briefing after a dialogue with regulators, investors and developers.

The amount involved was actually a conservative estimate, and that there is huge interest especially in the Asia Pacific region.

The delay in the implementation of the REIT was due to issues on the tax structure including the value-added tax (VAT), transfer taxes, and the high minimum public offer (MPO) level.

Securities and Exchange commission (SEC) Commissioner Teresita Herbosa admitted that there remains a lot of stumbling blocks. “For example, the tax issues is a disincentive,” Herbosa said.

Other members of the PSE were more irritated.

“It is frustrating, the Department of Finance did not attend,” Vivien Yuchengco PSE directress said on her way to the elevator.

Other representatives of financial institutions said that “there was nothing new or substantial that was discussed.”

The minimum public ownership or MPO required for a REIT to be entitled to the tax incentives is at least 40 percent in the first year, which should be increased to 67 percent by the end of the 3rd year. 

“The proposed increase in the MPO to 67 percent is unappealing, because this merely creates a huge market overhang,” interested parties to REIT said.

REIT issuers raised concerns on being forced to unload prospectively a significant equity stake in the REIT company as it is uncertain whether or not the domestic market may be able to absorb this in the future.

“Most of our neighboring countries only require a float of 10 to 25 percent,” the PSE chief executive said.

The Bureau of Internal Revenue (BIR) last year imposed stringent rules related to the minimum public ownership, as well as the VAT imposition, and the requirement of escrow.

Meanwhile, Sicat admitted that the Philippine model has more disincentives while the rest of the Asian nations look for more incentives.

“In some Asian countries, there is no tax on the asset transfer. In other Asian nations, they are offering more incentives to individuals rather than increasing the burden on participants,” he admitted.

Foreign investors will only look to other countries in the region for opportunities if the Philippine REIT version continues to carry a lot of unwanted weight and disincentives.

The Asia Pacific Real Estate Association (APREA) estimates that it may be billions of dollars just waiting to move in on opportunities in the Philippines.