Property firms worried over plan to impose VAT on REIT

By Zinnia B. Dela Peña (The Philippine Star) Updated July 18, 2011 12:00 AM

MANILA, Philippines - Property firms have expressed concern over a plan to impose the 12-percent value added tax (VAT) on the initial transfer of assets to a Real Estate Investment Trust (REIT) as well as a proposal to increase the minimum public ownership (MPO) of a REIT to 67 percent within three years from listing.

Real estate players, however, emphasized that they continue to work with the Department of Finance (DOF) and Bureau of Internal Revenue (BIR) to ensure the successful launch of REITs in the country.

While property firms are amenable to the proposed initial 40-percent MPO rule during the first three years of a REIT’s operation, they believe that the gradual increase of the MPO to 67 percent by the third year would lessen the competitiveness of the local REIT industry against its global counterparts.

“The requirement for a 67-percent MPO remains a very difficult issue and is, in fact, the subject of an appeal to the Securities and Exchange Commission by the private sector property players, including the different associations affected by this requirement,” said Asia Pacific Real Estate Association (APREA) chief executive officer Peter Mitchell.

Mitchell said the Philippines has the highest public float requirement for REITs among the countries in the ASEAN region. “The MPO requirement in Singapore (10 percent), Australia (25 percent), Hong Kong (25 percent) and Malaysia (25 percent) are significantly lower than the 67 percent MPO requirement for Philippine REITs,” he said.

According to the APREA, there continues to be a very strong interest in a REIT market in the Philippines, pointing out that a number of other markets, including China, are interested in passing a REIT law.

“REITs can stimulate not only the capital and property markets, but also the entire investment landscape of the country, as has been experienced in Singapore and other jurisdictions,” Mitchell explained.

Early last month, the SEC released revisions to the implementing rules of the REIT, which now require issuers to sell at least 40 percent of their outstanding capital stock at the initial year, higher than the original 33 percent but lower than the proposed amendment of 51 percent.