By Miguel Camus, Business Mirror

EFFORTS to implement the Philippine Real Estate Investment Trust (REIT) Act have gained some traction, with the corporate regulator set to revise parts of the law’s implementing rules following talks for a compromise between the private sector and the Department of Finance (DOF) on their differences.

The Securities and Exchange Commission said planned changes will include increasing a REIT’s minimum public ownership level to 40 percent from the previously approved 33.3 percent during its initial share sale.

Restrictions on how a REIT uses its authorized capital and rules concerning property managers will also see revisions.

The DOF, through the Bureau of Internal Revenue (BIR), needs the SEC to amend the implementing rules before it can release its own tax regulations—a key component that potential issuers want to see before offering REIT sales of their own.  

But hurdles for these issuers linger on the horizon with Revenue Commissioner Kim Jacinto-Henares saying she will pursue the imposition of the contentious 12-percent value-added tax on the initial transfer of property assets to REITs.

“The SEC working group will still be presenting changes to the DOF. This should be done as soon as possible,” said SEC spokesman Gerard Lukban last week.   

The BIR and private sector have met halfway on the 40 percent initial public float after the latter balked at the idea of immediately selling a majority, or the 51-percent ownership government had insisted on previously. This figure should be increased to over 60 percent in three years, the BIR said.  

According to the SEC, the BIR will also get its way regarding the use of a  REIT’s minimum paid up capital, set at P300 million, of which “no part” will be used to pay prior debts. The SEC will also grant REITs more flexibility in hiring a property manager.

“It should be easy for us to come up with our [tax rules]. But the SEC should first come up with their revised guidelines,” said Henares in a separate telephone interview.

Even with the SEC revising its REIT implementing rules of May last year, market watchers remain skeptical of the law’s viability given the BIR’s plan to impose the VAT on one-time property transfers.

Prospective issuers, which include some of the country’s largest real estate developers, had expected REITs to be exempt from this particular tax.

Henares reiterated that VAT for initial property transfers is nonnegotiable, adding that an earlier draft revenue regulation released under the previous government where VAT made non applicable was never finalized.

Other expected tax perks for REITs include the exemption from the initial public offering tax and DST from selling shares through the local exchange.

A REIT is also required to pay shareholders 90 percent of its distributable income as dividends, meaning only the remaining amount will be subject to the 30-percent income-tax rate.

Such incentives were designed to entice companies to tap the law, which will allow them to spin-off select real-estate assets such as shopping malls and hotels to be listed on the Philippine Stock Exchange.

This allows them to raise fresh capital to expand their businesses, while giving the public the opportunity to invest in mature real estate assets that provide relatively steady returns.

The BIR earlier estimated substantial revenue losses from the implementation of the law but issuers said the key was ensuring a robust REIT market to create additional economic activity, which would offset the effects of tax perks.

Real-estate developers SM Prime Holdings Inc., Ayala Land Inc. and Robinsons Land Corp. are seen raising at least $1 billion each by spinning off assets into REITs.

21 Mar 2011