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Reit rules discourage real estate companies

[ manilastandardtoday.com ] July 28, 2011
by Jenniffer B. Austria

The Philippine Stock Exchange said Wednesday no local property company will convert its revenue- generating assets into a Real Estate Investment Trust and list it in the stock exchange due to the stringent rules of the Finance Department.

“Our view is that the Reit may not have any takers. But we could be wrong. Maybe, companies will change their minds,” PSE president and chief executive Hans Sicat said when asked by reporters to comment on the implementing rules and regulations approved by Finance.

“We will wait for the market to decide whether they [finance officials] are correct. Our feedback from market players is that they are highly skeptical whether they can do Reit listing with the initial tax on the transfer and difficulty of the high public float requirement,” he said.

Big real estate firms, namely Ayala Land Inc., Robinsons Land Corp., SM Prime Holdings Inc. and Megaworld Corp., earlier expressed interest in a Reit listing.

The industry, however, has opposed the stringent measures that the government wants to impose.

Finance wants Reit companies to maintain the minimum public ownership of 67 percent by the end of the third year from listing at the latest. Finance will not allow the deduction of dividend payment from the net income if the public float falls below the limit.

The government also wants to impose a value-added tax on gross sales or gross receipts from any disposal of the real property and on gross receipts from the rental of such real property covered by Reit.

Share prices of Megaworld and SM Prime rose Wednesday, after the government issued tax rules for the Reit listing.

Megaworld advanced 4.2 percent to P2.23 while SM Prime climbed 1.1 percent to P11.52.

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

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