real estate investment trust (REIT)

By Iris C. Gonzales (The Philippine Star) Updated December 09, 2009 12:00 AM

MANILA, Philippines - The Department of Finance (DOF) has reiterated its previous position that a bill seeking to grant hefty tax perks to publicly-listed companies operating as a real estate investment trust (REIT) would translate to billions in yearly losses for the government.

In a letter to Malacañang, the Finance department reiterated that the REIT bill would mean annual foregone revenue losses of P2.7 billion once it is fully implemented. For the first year of implementation alone, the government expects to lose P1 billion.

Malacanang is set to sign the REIT bill soon following ratification by the Senate and the House of Representatives last September.

Sources at the Finance department conceded that the measure would be implemented soon following the ratification by Congress and the scheduled signing of President Arroyo. Fiscal authorities nonetheless reiterated the amount of revenues that would be lost once the measure is fully implemented.

The Department of Finance was able to trim down its projected annual revenue losses from the soon-to-be-enacted law providing incentives on investments related to financing and big-ticket real estate projects to P2.7 billion from the original estimate of P5.3 billion after Congress heeded some of the recommendations of the Finance department to reduce the tax perks.Nonetheless, the revenue losses are still in billions, sources said.

A company operating as a REIT finds investors and buys real property. It also gives each investor either a percentage interest in the property itself or an interest in a loan secured by a mortgage or deed of trust on the property. The loan is usually for developing property and to build upon it, and then there is a division of profits upon sale, if there is a profit.

According to the ratified REIT measure, overseas Filipinos investing in REITS are exempt from payment of dividend tax for seven years from the effectivity of the law. The transfer of properties

to REIT companies is also entitled to lower documentary stamp tax (DST) by 50 percent. Furthermore, the measure also grants lower creditable withholding tax (CWT) of one percent on income payments to the REIT.

Government to lose billions with REIT law

By Iris C. Gonzales (The Philippine Star) Updated December 09, 2009 12:00 AM

MANILA, Philippines - The Department of Finance (DOF) has reiterated its previous position that a bill seeking to grant hefty tax perks to publicly-listed companies operating as a real estate investment trust (REIT) would translate to billions in yearly losses for the government.

In a letter to Malacañang, the Finance department reiterated that the REIT bill would mean annual foregone revenue losses of P2.7 billion once it is fully implemented. For the first year of implementation alone, the government expects to lose P1 billion.

Malacanang is set to sign the REIT bill soon following ratification by the Senate and the House of Representatives last September.

Sources at the Finance department conceded that the measure would be implemented soon following the ratification by Congress and the scheduled signing of President Arroyo. Fiscal authorities nonetheless reiterated the amount of revenues that would be lost once the measure is fully implemented.

The Department of Finance was able to trim down its projected annual revenue losses from the soon-to-be-enacted law providing incentives on investments related to financing and big-ticket real estate projects to P2.7 billion from the original estimate of P5.3 billion after Congress heeded some of the recommendations of the Finance department to reduce the tax perks.

Nonetheless, the revenue losses are still in billions, sources said.

A company operating as a REIT finds investors and buys real property. It also gives each investor either a percentage interest in the property itself or an interest in a loan secured by a mortgage or deed of trust on the property. The loan is usually for developing property and to build upon it, and then there is a division of profits upon sale, if there is a profit.

According to the ratified REIT measure, overseas Filipinos investing in REITS are exempt from payment of dividend tax for seven years from the effectivity of the law. The transfer of properties

to REIT companies is also entitled to lower documentary stamp tax (DST) by 50 percent. Furthermore, the measure also grants lower creditable withholding tax (CWT) of one percent on income payments to the REIT.

CDC Holdings: Establishing credibility, boosting success with ‘relationship marketing’

Wednesday, 30 September 2009 19:30

THE real estate industry is one cutthroat battleground with developers always trying to outdo competition by continuously coming up with one project to the next like a manufacturing plant churning out homes. Homebuyers are overwhelmed with the choices and the programmed responses to the whole process of procuring a property. Lost in the urban milieu is the traditional relationship of old, which transpired between buyers and concerned developers seeking to give a family their dream home. For CDC Holdings, this strategy called “relationship marketing” should never be compromised. Instead, it is espoused until today, with transactions between client and company elevated on a personal level. “We train our people to recognize the importance of having a good relationship with our customers – to be with them every step of the way to owning a new home,” said Elsie Chua, president of CDC. Chua, an expert with more than 22 years’ track record in the property industry, refers to the strategy as one of the winning formulas for the company’s success. In fact, the continued implementation of this technique boosted CDC’s gross revenue sales, from P80 million in 2007 to P364 million as of July this year. A significant portion of the sales is attributed to the high referral rates—another testament to the company’s admired products and much sought-after services. Strong start CDC Holdings is the investment arm of a group of companies engaged in property development, property management, sales and marketing, hotel and serviced-residences management. When it started, CDC Holdings began building and selling residential units for the middle-income market. The company soon expanded to vertical developments, the most notable of which is Millennium Plaza. The project became the benchmark of serviced apartments in the country as Millennium Plaza was managed by an international hotel group. In 1994, The Quadrillion Marketing Corp. was created to better manage the growing portfolio of CDC Holdings Inc. Under the Quadrillion umbrella, other companies were established such as Quadrillion Sales Inc., Quadrillion Property Management Inc., and the Quadrillion Filipino Center. These companies boosted CDC’s ‘relationship marketing’ strategy as the companies provided opportunities that empowered CDC’s sales force – giving them the chance to excel in sales and be their own entrepreneur. “In a way it became a CSR project of CDC as we were able to give jobs where people can further improve their skills to their advantage,” Chua noted. Tapping the offshore market One of the directions taken by the company is to tap the market of overseas Filipino workers (OFW), particularly those in the Middle East. “We are trying to reinforce the positive idea that real estate is a good investment where OFWs can put their hard-earned money in. We provide them with housing projects fit for the kind of lifestyle they deserve after working for so many years in a foreign country,” Chua explained. These homes range from single-detached units, town houses and mid-rise condominiums. Some of the latest projects are: La Joya de Santa Rosa in Laguna (house and lot properties), Manila Rivercity Residences in Santa Ana, Manila (mid-rise condos), Crisanta Villas in the Pasig-Cainta area (townhouses), and Lions Park Residences in Parañaque (mid-rise condos). These homes offer a state-of-the-art lifestyle inspired by bustling cities all-over the globe. “We sit with our clients and get first-hand information on what kind of home they wish to have for themselves and their family. Those ideas are then infused in our projects, so that our market can enjoy that kind of lifestyle,” Chua said. CDC goes the extra mile by adding different facilities that will be enjoyed by their future home-owners. Lions Park for example, promotes the serene lifestyle with well-landscaped gardens, while Manila Rivercity Residences has numerous water installations to exude a Zen lifestyle. The feedback from abroad has been so positive that Chua is actually the first woman allowed to sell properties and set-up office in Saudi Arabia. Other countries with a CDC sales force include Japan and Qatar. 4 Ps of success Chua credits the success of CDC to four major factors: “First is that we offer the right product. We don’t take advantage of our customers. Our projects have always been on a “build first, sell later” basis to make sure that we deliver what we promise. And we don’t hold back on the quality. For our mid-rise condo projects for example, we make sure that our residents never feel cramped, the way they usually do in other high-rise projects.” Next is the right price. According to Chua, CDC is tapping not only OFWs as their major clients. “We are also tapping the middle-income work force and starting families, so our projects are considered affordable and easy on the savings. We help them when it comes to payments by pointing them to the right direction of entities who could help them such as Pag-IBIG Fund.” Third factor is the right promotion. “Aside from some marketing strategies, we get most of our promotion from our clients who trust our products and directly recommend us to other people.” Last, but not least, is the people. “We create a kind of environment where people are inspired to work because they know that what they are doing will benefit themselves as well. We have a very special relationship not only with our clients, but among our employees as well. Our people are our most important asset.” CDC Holdings Inc. is currently ironing out future plans of establishing serviced apartments in Quezon City, Manila, Cebu, Iloilo and other parts of the country.

A lot of interest’ in REIT seen to boost markets as bicameral panel version is ratified

Written by Butch Fernandez | Reporter

Wednesday, 30 September 2009 19:33

WITH the Senate unanimously ratifying on Tuesday a bicameral committee report endorsing the final version of the Real Estate Investment Trust (REIT) bill, stock exchange officials expect a flood of investments in realty assets, which they hope in turn would deepen the domestic capital market. Philippine Stock Exchange (PSE) President Francis Lim confirmed there is “a lot of interest in REIT by the property sector” whose major players are just waiting for the law to take effect “so they can act accordingly.” In a brief interview, Lim described the REIT as “a landmark legislation for the Philippine stock market because we are about to see the day where there are more listed companies and there will be more liquidity to our stock market in terms of REIT shares being traded through the stock exchange.” More than that, Lim added, “we hope to see that by this law, our real- estate industry will blossom to its full potential while at the same time enabling public, small investors to participate not only in the ownership but also in the income of real estate in the Philippines.” The PSE president admitted that at present “real estate here in the Philippines is owned by only a very few groups of people and one of the things and vision of this law is to disperse ownership of this very valuable pieces of properties.” As approved by the Senate and the House, a REIT is a stock corporation that can invest in income-producing realty assets like condominiums, office buildings, warehouses, and the like. It allows the direct returns of real estate in a securitized form by providing a structure for real-estate investments similar to how mutual funds manage stock investments. “REIT will not only allow the country to participate in the globalization of the real-estate investment markets but it will also contribute to the growth and development of the capital market and the country through increased investment activities,” said Sen. Edgardo Angara, its principal author. He added that the creation of a Philippine REIT industry will help the Philippines “sustain economic growth through the development of the capital market.” The consolidated REIT bill will shortly be submitted by the Senate and the House to Malacañang for signing into law to pave the way for the creation of the legal and regulatory framework governing real-estate investment trusts in the Philippines. Lim said that as soon as the measure is enacted, the implementing rules and regulations will be issued by the Securities and Exchange Commission, and the tax features will be crafted by the Department of Finance and the Bureau of Internal Revenue within 90 days. In a separate interview, Angara explained that the REITs would level the playing field for real-estate players by allowing small and large investors alike to participate directly in the ownership and financing of large-scale real-estate projects at affordable rates of investment, without the disadvantages of illiquidity, high transaction and management costs, as compared to traditional private real-estate ownership. “In this sense, it will democratize wealth by broadening ownership of real estate in the Philippines,” Angara said, adding that “it will also provide added revenues to the national government through income taxes, value-added taxes, stock-transaction taxes and DST that will be generated by the REITs industry. “It will create a ripple effect in the economy in terms of increase in employment, foreign and local participation in the stock market, real estate transactions, construction, increased consumer spending and development of the capital market, in general,” he told reporters. The law requires a REIT to be publicly listed to enable the investing public to partly own the company and share in the income of the company. There must be at least 1,000 public shareholders who, in the aggregate, own at least 30 percent of the company. The company must distribute yearly at least 90 percent of its distributable income to all its shareholders. Public shareholders are persons totally unrelated to the sponsor/promoter of the REIT, which is defined as a person who contributes property or cash to establish the REIT. The minimum paid-up capital for a REIT is P300 million. To encourage the establishment of REITs, the law provides tax incentives to the REIT and its shareholders. The 30-percent income tax rate will be based on the REIT’s net taxable income after deducting the 90-percent dividend distribution to its shareholders. Under current law, the 30-percent tax rate is imposed on the net taxable income before dividend distribution. Transfers of property to the REIT shall be subject to 50 percent of the applicable documentary stamp tax, registration and annotation fees. Sale of shares of the REIT through the stock exchange shall be exempt from the documentary stamp tax (DST) and the stock transaction tax of one-half of 1 percent instead of the higher rate of capital gain tax. The REIT shall be exempt from the initial public offering (IPO) tax when it offers its shares to the public through a local stock exchange. The IPO tax is seen to be a big deterrent to private companies to raise funds from the public through an offering of their shares.  The Philippines imposes an IPO tax.  Consequently, the Philippines has very few listed companies compared with other countries in Asia, despite the fact that our stock market is one of the oldest in the region. Dividends paid by the REIT to a domestic corporation, resident foreign corporation and OFWs shall be exempt from the 10-percent dividend tax. In case of overseas Filipino workers (OFWs), the exemption shall be good for seven years from the effectivity of the tax regulations implementing the law.

Start-up businesses may cut costs with this ‘office’

Written by Rizal R. Reyes / Correspondent

Wednesday, 28 October 2009 18:20

HAVING a power address is one of the elements in building a business. However, companies such as start-ups experience difficulties in getting a power address primarily because of the cost. With the entry of CEO Suite, the problem of small and medium enterprises (SMEs) getting a prestigious address is not a problem anymore with the emergence of providers such as CEO Suite. Emmylou Llanes, director of CEO Suite, said SMEs have become more knowledgeable in utilizing their operating requirements by enlisting companies engaged offering of a managed office facility. “Now, they understand the value of a managed office facility, especially the savings they can possibly have if they switch from having their own office they manage on their own,” said Llanes in an interview with the BusinessMirror. Llanes said the business model CEO Suite as a one-stop office solution provider offering low-cost offices at prestigious location complemented by excellent service suits the SMEs very fine. Aside from the SMEs, Llanes said multinational companies that are downsizing or even local companies which are aware of the value for money provided by a managed office remain important markets for CEO Suite. “More and more start-up businesses also subscribe to our Virtual Office, which provides them facilities available from only P2,600 a month,” she said. “Business-process outsourcing companies, too, in their start-up phase usually use our facilities while they are recruiting and fitting out their conventional space; aside from our regular clients, who use our videoconferencing and meeting facilities from time to time,” Llanes added. As far as savings is concerned, Llanes said a locator can achieve savings of up to 78 percent. Llanes added CEO Suite saves money on facility costs upon enlisting, because they’re not required just to pay one monthly fee for the duration of their agreement. Locators don’t have to worry about the facilities, as these are already in place, inclusive of furniture, IT and telephone. Common areas are shared: reception, meeting room, pantry. Clients pay only for the administrative support services they use. Clients only pay one bill in one month, no need to worry about utilities, maintenance, general office administration. Plus, the offer of flexibility, they can only commit to the term which makes sense for their business, even just for one week, or one year. Llanes said CEO Suite attracts companies of all sizes, from start-up companies, setting up branch, representative offices, companies which require overflow or regional work. CEO Suite has offices in Jakarta, Manila, Shanghai, Beijing, Singapore, Kuala Lumpur and Bangkok. In addition to managing a company’s business correspondences, CEO Suite has telephone-answering services, fax and personalized e-mail facilities, and ensures that all mails and calls are attended to, and processed according to the client’s instructions and preferences, at all times, wherever he goes.