PSE seeks revival of REIT

MANILA, Philippines - The Philippine Stock Exchange (PSE) is seeking the revival of the real estate investment trust (REIT), an investment option stalled by tight taxation framework.

The stock market operator is pushing for the relaxation of tax rules to make Philippine REITs more competitive in the region, its top official said.

Revisions in the implementing rules and regulations of the REIT were discussed during the most recent Capital Market Development Council (CMDC) meeting, said PSE president and CEO Hans B. Sicat.

CMDC is chaired by Finance Secretary Cesar V. Purisima. “But at the end of the day, it requires the Securities and Exchange Commission (SEC) to update and change the implementing rules and regulation and also the taxation authorities,” Sicat said.

The REIT Law took effect in December 2009, approving the creation of REIT corporations that use a pool of investor funds to purchase and manage real estate assets.

However, implementing rules of the Bureau of Internal Revenue (BIR) and SEC relating to the minimum public ownership, the imposition of value-added tax on property transfers and the requirement of escrow dampened the interest of property firms.

“If we have a product that has an extremely high friction cost and very difficult rules to comply with, they simply won’t happen,” Sicat said.

Property firms and the PSE oppose the tax on transfer of assets to the REIT company, a rule that is not present in other jurisdictions, Sicat said.

To set up a REIT, the potential issuer must form a REIT corporation to which the issuer will have to transfer its REIT-able assets.

“[The revision] becomes more important now because our colleagues at the stock exchange of Thailand are launching their own REIT product soon,” Sicat said.

Hence, regional and global investors looking for REITs might go to other jurisdictions.

Several property giants earlier expressed interest in REIT ventures, among them SM Prime Holdings Inc., Ayala Land Inc. and Robinsons Land Corp. However, no REIT companies have yet to list in the local bourse given restrictive taxation policies.

“The focus should be, from a policy perspective, on trying to be supportive of an end result where you have a deeper market,” Sicat said.

The PSE estimates that the Philippines can generate at least $2.4 billion in new investments from the private sector because of the additional capital that the REIT structure can provide.

In the first year of implementation alone, foregone revenues of the BIR will be more than compensated by higher taxes from increased transactions in the local bourse, Sicat said.