Vol. XXII, No. 88 [ BusinessWorld Online ]
Wednesday, November 26, 2008 | MANILA, PHILIPPINES
THE HOUSE economic affairs committee yesterday approved a measure that will allow investors to co-own income-generating real estate assets but said the bill’s tax provisions are still up for perusal by the ways and means committee.
Cebu Rep. Ramon H. Durano, committee chairman, said the unnumbered House bill (HB) on real estate investment trusts (REITs) "has undergone a thorough study and is fit for passage at the committee level" but the tax incentives must have the go-ahead of the ways and means committee.
The bill consolidates three separate bills aimed at establishing REITs.
Finance Secretary Margarito B. Teves, in a letter to Mr. Durano, said he opposes those incentives.
"We believe the proposed DST (documentary stamp tax) exemption on the transfer of property to the REIT, the IPO (initial public offering) tax exemption and the VAT (value-added tax) exemption of the sale of REIT securities will not promote a level playing field," he wrote.
Francis Ed. Lim, Philippine Stock Exchange president and chief executive, who attended yesterday’s hearing, suggested limiting the grant of these incentives to five years as compromise with the Finance department, to which the committee concurred.
Another amendment the committee adopted was to limit REITs’ total allowable borrowings and deferred payments to 45% of deposited property from the original 35% , which can be raised to 60% for as long as the REIT has an "A" credit rating by a agency recognized by the Securities and Exchange Commission.
Aurora Rep. Juan Edgardo M. Angara, one of the bill’s co-authors, doubted the credibility of rating agencies and moved that the panel just settle for a fixed percentage limit.
REITs are stock corporations that pool investors’ funds and invest these in real estate ventures. They acquire property and have independent fund managers.
At least 75% of a REIT’s deposited property must be invested in income-generating real estate located in the Philippines.
Allowable investments are income-producing real properties; real estate-related assets; managed funds, debt securities and shares issued by listed or foreign non-property corporations; government securities; and cash and cash equivalent items.
The House bill requires a REIT company to have a minimum paid-up capital of P1 billion at the time of its registration, while the Senate bill provides for a P100-million capital.
Mr. Lim said he has asked Senator Edgardo J. Angara, author of the Senate version and Rep. Angara’s father, to adapt the House version so his bill will reflect the same amount of paid-up capital.
Some proposed amendments were rejected yesterday. One was to insure investments against souring.
Nueva Ecija Rep. Eduardo Nonato M. Joson said the concept of investment insurance should be introduced to the country to protect investors in the event REITs collapse.
Mr. Lim, however, said the concept of insuring an investment is "easier said than done and too expensive" and no insurance company is offering the product.
Mr. Angara added that a bailout will constitute a moral hazard.
"If there is an investment insurance offered, chances are that investors will take bigger risks, even venturing out to complicated securities like derivatives without fully understanding their consequences," he said.
Mr. Durano said that investor-protection schemes under the bill, which include tight disclosure of of a REIT’s monetary transactions and oversight by independent directors, will have to suffice. — Jhoanna Frances S. Valdez with a report from R. A. M. Rubio
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