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News Release

July 24, 2011

To REIT or not to REIT


That is the question. In fact, that is the burning question in the minds of key players and stakeholders in the Philippine property industry.

Republic Act No. 9856, otherwise known as the Philippine Real Estate Investment Trust (REIT) Act lapsed into law in December 2009. While the Philippines’ Securities and Exchange Commission and Philippines Stock Exchange have already approved the Implementing Rules and Regulations and the listing rules for REITs, respectively, the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) have questioned the minimum public ownership requirements and the tax incentives for REITs, respectively.

The DOF initially reached an agreement with the industry players in June this year to peg the initial public float at 40%; but the industry players have questioned the proposed gradual increase of the minimum public ownership to 67% on the third year of listing in the REIT market. The BIR, on the other hand, expressed concerns about the non-imposition of the 12% Value-Added Tax on the initial asset transfer to the REIT vehicle.

The Philippines, along with India and China, is targeting to be included in the list of countries in the Asia-Pacific region with established REIT markets. Upon looking at the various models of the advanced REIT markets in our neighbouring countries, the key takeaways are manifested in the increased flow/stimulation for investments and increased accountability/transparency of the key players and stakeholders. Moreover, the recent successes of the REIT markets in the Asia-Pacific region can be traced to the efficient intervention and regulation of their respective governments.

Clearly, the conflicting views of the government and the key players in the industry towards the full implementation of the REIT law can erode the competitiveness of the Philippine property market over time. In order to capture the real gains of the REIT market, the misaligned interests between the public and private sectors should be quickly resolved while the economy is still consistently growing and the property fundamentals are constantly improving.

As the issues between the government and the local property players are getting good amount of press lately, the burning question yet resurfaces: Will the REIT market in the Philippines finally be able to see the green light? And that, for most of us, is the real question.

About the author
Claro Cordero is the Head of Research, Consulting & Valuation for Jones Lang LaSalle in the Philippines.