By Report, ABS-CBNnews

The Asia Pacific Real Estate Association (APREA) said Tuesday the Philippine government failed to understand the benefits of real estate investment trusts (REITs) on the economy when it imposed stringent rules on these.

"The benefits that REITs bring to the broader economy are well documented and it is therefore very disappointing that the regulators in the Philippines are continuing to delay their introduction. There seems to be a failure to understand the economic benefit, what it takes to create a successful REIT market and how global institutions allocate funds to listed real estate," said Peter Mitchell, CEO of APREA.

Mitchell made the statement in reaction to reports that Henry Sy-led SM Prime Holdings Inc. has dropped its plans to launch a REIT, mainly because of the government's rules on public ownership and value-added tax.

"The window won't stay open for ever, and the obfuscating may kill a major potential benefit to the economy through, among other things, billions of extra dollars flowing in."

SM Prime, the country's biggest mall developer, wanted to raise up to $500 million from a REIT issue and had picked CLSA and Macquarie as financial advisers. However, it announced last week that it was dropping its REIT offer due to the 40% minimum public ownership rule.

The securities regulator has set public ownership of REITs at 40% during the first two years from listing, and at 67% by the third year. Bureau of Internal Revenue (BIR) rules state that REITs could only avail of tax incentives if they maintain public ownership of at least 67% and allocate to shareholders at least 90% of their distributable income.

Aside from minimum ownership, the BIR also set a 12% value-added tax on the initial transfer of property assets in REITs.

REITs are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses and shopping centers.

Aside from SM Prime, other property giants -- Ayala Land Inc. and Megaworld Corp. -- earlier expressed interest in setting up REITs. But the companies wanted the public ownership requirement be brought down to 33%.

Mitchell said 33% is "already high by international standards."

"The minimum public ownership condition, even if accepted by a sponsor, would result in very sub-optimal products being offered, to the detriment of investors. Either way, if insisted upon it will ensure that REITs won't successfully get under way in the Philippines," he said.

9 Aug 2011