When will there be a Philippine REIT be available? Its anybody’s guess as it appears everybody is focused on the tax benefit than the whole benefit of the financial instrument for property development. Can someone just get started with doing it?
From Business Mirror
THE Philippine Stock Exchange (PSE) sees the current year as another lost cause for potential issuers of Real Estate Investment Trust (REIT) and is more optimistic for 2013 as efforts to amend the REIT law gain steam, its top official said.
The PSE president, Hans Sicat, told reporters last week that an initiative to amend the law is being spearheaded by industry group Financial Executives of the Philippines but the effort is still far from a guaranteed success.
The law provides a framework for investors to buy shares in REIT firms, which will own assets, such as shopping centers, apartments and office buildings, and earn from dividend payments.
Sicat said the current strategy is to focus on the contentious public-ownership requirement, which starts at 40 percent but should be increased to 67 percent in three years, and the value-added tax (VAT) on one-time property transfers.
Based on the PSE proposal, taxes on the initial transfer of a property to a REIT should be based on “zonal valuation,” not market value, he added.
Philippine REITs will still come out less competitive versus other REIT frameworks abroad, Sicat said, as such property transfers are meant to be tax-free.
“On the other hand, maybe the trade-off is it’s better than having a product than no product at all,” the PSE president added. “Having something that approximates your ideal is better than zero.”
When asked whether the law can be amended in time for a REIT offer this year, Sicat said, “Given where we are, if it gets [amended], it’s a next-year product.”
The REIT Act was passed into law at the end of 2009 but its implementation has suffered several delays as the government worried that tax incentives would hurt revenue generation amid its swelling budget deficit.
The Department of Finance eventually came up with the tax implementation rules in mid-2011 but potential REIT issuers, already hesitant due to the steep public-float requirements, balked at the addition of VAT.
Since its implementation, there has not been a single REIT offer.
The PSE estimates that a viable REIT solution would generate at least $2.4 billion in fresh investments.
“EFTs continue to be the largest asset class and it still is growing asset class for all jurisdictions,” he said noting that the first ETFs could be operational within this year.
An ETF is similar to a mutual fund but also allows investors to diversify their portfolio by buying a single product that represents a wide range of securities tracking multiple assets such as stocks, commodities or bonds which can be traded like a stock