Think tank urges BIR to speed up REIT rules

MANILA, Philippines - A private think tank is urging the Bureau of Internal Revenue (BIR) to expedite the crafting of its implementing rules and regulations (IRR) on a new law designed to energize the Philippine capital market, spur big-ticket real estate investments and broaden the participation of retail investors and the rest of the public in such projects.

This new law—the Real Estate Investment Trust (REIT) Act of 2009—is meant to make the country’s real estate market a lot more attractive to foreign investors and fund managers and at the same entice retail investors to take part in large-scale infrastructure projects through stock offerings, according to the private think tank Forensic Law and Policy Strategies, Inc. (Forensic Solutions).

Headed by former Justice Secretary Alberto Agra, Forensic Solutions pointed out in its 7th policy paper that the REIT law also aims to protect the investing public by providing a regulatory framework and environment under which real estate investment trusts, through certain incentives, can prosper and attain the government’s goal of stimulating the domestic capital market.

“REITs are generally stock corporations that invest primarily in real estate and qualify for special tax status. These companies are publicly listed and are viewed as liquid real estate investments because investors are able to liquidate their position in a short time frame, despite the volatility in equity prices,” it said.

Republic Act 9856 or the REIT Act of 2009, lapsed into law on Dec. 17, 2009, but up to now, only two of three concerned agencies—the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE)–have issued their counterpart rules and regulations governing REITs.

The third agency—the BIR—has yet to come up with its own set of IRR for REITs, Agra said in the paper, which he co-wrote with Maricel Baltazar, a tax practitioner and former executive of both Pricewaterhouse Coopers Manila and SGV & Co. 

Agra and Baltazar noted that the BIR has yet to release the IRR apparently because of several issues governing real estate investment trusts, such as the period of collecting deficiency taxes from delinquent REITs and the imposition of additional tax charges with the revocation of the tax incentives of REITs once they are delisted from the PSE.

Under the law, these REIT companies enjoying tax privileges will be delisted as public companies once they fail to comply with certain requirements, such as their continued status as publicly listed companies and the release of 90 percent of their distributable incomes.

To encourage investors to participate in REITs, Agra and Baltazar said the law grants them several incentives, which include reduced documentary stamp tax rates, lower withholding taxes and exemptions from the payment of the corporate income tax.

“Admittedly, granting tax incentives will erode the government’s collection efforts. However, if the government sincerely intends to develop the capital market, level the playing field and give opportunities for retail investors, the government must give a chance and encourage the development of REITs as a possible source of investment and another avenue for foreign investors to invest in real estate in the country,” they added.

In its latest policy paper, Agra and Baltazar noted that the REIT law has long been awaited by the business community, with big companies such as Ayala Land, Robinsons Land and SM Prime Holdings reportedly interested in using this as a vehicle to further expand their real estate investments.

They called on the government to seize the opportunities and benefits offered by the REIT law in developing and strengthening the country’s capital market, which are now being enjoyed by other countries that have enacted their respective versions of REITs legislation, such as Japan, South Korea Singapore, Hong Kong, Taiwan, Malaysia and Thailand.

“Presently, Hong Kong, Singapore and Malaysia are reaping the benefits of REITS as an investment vehicle with a weighted average dividend yield of 8.1%, 8.9% and 3.7%, respectively. The government must issue regulations which are responsive to industry growth and which allows the Philippines to participate in this billion-dollar industry and benefit from its economic viability,” they said.