SEC, DOF in talks to revise REIT rules

The Securities and Exchange Commission (SEC) is resolving the long-standing public ownership and taxation issues that caused property giants and infrastructure firms to shun the Real Estate Investment Trust (REIT) law a decade ago.

SEC Commissioner Ephyro Luis B. Amatong said the corporate regulator was in talks with the Department of Finance and that the goal is to finalize a new set of rules within the second quarter of 2019.

“That’s our target,” Amatong said in an interview on the sidelines of the induction of new officers and directors of the Investment House Association of the Philippines.

Amatong, however, gave no certainty whether this goal would be achieved.

The REIT Act, passed by Congress in 2009, would have allowed companies to spin off assets that earn recurring income such as shopping malls, hotels and even tollroads and list these on the Philippine Stock Exchange.

REIT vehicles are typical in other jurisdictions.

For companies, they provide a fresh avenue to raise funds for other investments.

Investors are likewise allowed to tap a new asset class, broadening their menu of options.

The REIT law was ultimately shunned by investors after the DOF, under the term of President Aquino, feared billions of pesos in revenue losses and imposed tax penalties on the transfer of real estate assets to a REIT vehicle.

In the same respect, the SEC required that the public should own a controlling stake in a REIT in three years.

Fund managers also raised concerns about a provision in the rules stating that the REIT property manager must be independent from the owner.

Amatong said that the Tax Reform for Acceleration (TRAIN) law allowed value added tax (VAT)-free transfers on REIT assets.

However, he noted that the Bureau of Internal Revenue still had rules that penalized REIT firms if they failed to meet the public ownership requirement in three years.

“We are in dialogue with the DOF [to resolve this],” Amatong said.

Property developers such as SM Prime Holdings Inc., Ayala Land Inc. and Robinsons Land Corp. were among those keen on holding REIT offers if the rules were eased.

Estimates a decade ago saw them raising around $1 billion through REIT listings.