PSE sees no takers for REITs

Posted at 07/27/11 6:54 PM

MANILA, Philippines - The Philippine Stock Exchange (PSE) on Wendesday warned that the stringent tax rules for Real Estate Investment Trusts (REITs), which include a 12% value-added tax on transfer of assets, might scare away interested property developers.

"Our view is that the REIT may not have any takers. Our feedback from market players is that they are highly skeptical whether they can do REIT listing," PSE president and CEO Hans Sicat told reporters. "But we could be wrong."

Aside from VAT, the Bureau of Internal Revenue (BIR) set a 30% income tax rate on REITs under its implementing rules, which have been awaited by property companies seeking to set up investments trusts after Congress passed the REIT law two years ago.

The BIR rules also state that REITs could avail of tax incentives if they maintain public ownership of at least 67% and allocate to shareholders at least 90% of their distributable income.

The high public float requirement is also seen as a deterrent to private sector participation in REITs.

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. Property giants, including Ayala Land Inc., SM Prime Holdings Inc. and Megaworld Corp., had asked that the requirement be brought down to 33%.

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

Unlike ordinary domestic and resident foreign companies, REITs will be spared from the payment of minimum corporate income tax equivalent to 2% of the gross income in lieu of the payment of net income tax.

Share prices of real estate firms went up on Wednesday, a day after BIR issued the tax rules.

Megaworld surged 4.2% to P2.23 while SM Prime climbed 1.1% to P11.52 per share.