Mary Ann LL. Reyes (The Philippine Star) – February 9, 2020 – 12:00am
Soon, there will be a better alternative for those who are into buying condominiums and other real property for investment purposes.
With the issuance by the Philippine government of the new implementing rules and regulations of the Real Estate Investment Act of 2009, real investment trusts (REITS) may finally take off soon in this country.
A REIT is a stock corporation established principally for the purpose of owning income-generating real estate assets. The only way one can invest in REIT is by way of subscription to or purchase of shares of stock in the REIT.
Making money by investing in REIT appears to be easier than buying a condominium unit and then finding a lessee or holding on to the unit without actually occupying it, waiting for the right time to sell it but in the meantime being burdened by property taxes, condominium dues, maintenance and repair costs, among others.
Republic Act 98561 or the REIT Act requires a REIT to distribute annually at least 90 percent of its distributable income as dividends to its shareholders not later than the last day of the fifth monthly following the close of the fiscal year of the company. Such dividends shall be payable only from out of the unrestricted retained earnings of the REIT. And such distributable income excludes proceeds from the sale of the REIT’s assets that are reinvested by the REIT within one year from the date of the sale.
The cash or property dividends paid by a REIT shall be subject to a final tax of 10 percent. In the case of overseas Filipino investors, they are exempt from the dividends tax for seven years from effectivity of the tax regulations implementing the law.
REITs are only allowed to invest in real estate in the Philippines, but they may invest in income-generating real estate outside the country provided such investment does not exceed 40 percent of its deposited property and only upon special authority from the Securities and Exchange Commission. The law also allows investments in real estate-related assets; managed funds, debt securities and listed shares issued by local or foreign non-property corporations; cash and cash equivalent items; and other investment outlets which the SEC may allow.
At least 75 percent of the deposited property of the REIT must be invested in, or consist of, income-generating real estate.
The same law requires a REIT to be a public company which must be listed and upon and after listing, have at least 1,000 public shareholders each owning at least 50 shares of any class of shares who in the aggregate own at least one-third of the outstanding capital stock of the REIT.
All these perks however failed to generate interest in creating REITs in this country for the past 10 years due to contentious issues in the original IRR.
But the revised IRR addressed many of these. For instance, it lowered the minimum public ownership from 40 percent in the first year of listing to at least 33 percent of the outstanding capital stock in line with the provision of the REIT Act. Prior to the amendment, the IRR also required REITs to increase their public float to 67 percent within three years from their listing.
The Bureau of Internal Revenue has also amended Revenue Regulation 13-2011 to exempt from the 12 percent value-added tax the transfer of property to a REIT in exchange for its shares, provided that the exchange will result in an acquisition by the transferor of at least 51 percent of the outstanding capital stock of the transferee.
The BIR has likewise removed the requirement for a REIT to place in escrow the income tax collectible from the REIT on dividends declared and deducted from its taxable income, as well as the 50 percent documentary stamp tax given as incentive on the transfer of real property to the REIT.
According to Philippine Stock Exchange president Ramon Monzon, many companies have already expressed interest in the REIT landscape. In fact, the first listing is expected to happen during the first quarter of this year.
For his part, Finance Secretary Sonny Dominguez said the listing of REIT companies on the stock exchange creates a secure opportunity for small investors to participate in the growth of property development in the country.