A policy on Real Estate Investments imperative in RP
REIT SET FOR BICAM NEXT WEEK

Senator Edgardo J. Angara recently proposed to establish a regulatory framework that will help accelerate the stock market's growth by introducing an investment instrument that continues to assist other stock markets in their expansion.

"A stock market functions as an engine of economic growth. It facilitates the inward flow of capital to create or expand businesses that in turn generate livelihood opportunities for thousands of subcontractors, and jobs for tens of thousands of workers," said Angara who formerly chaired Senate Committee on Banks, Financial Institutions and Currencies.

He added, "It is thus imperative to create a policy that will promote the development of the capital market, broaden the participation of Filipinos in the ownership of real estate in the Philippines, use the capital market as an instrument to help finance and develop infrastructure projects, and protect the investing public by providing an enabling regulatory framework and environment for real estate investment companies."

Real estate investment trusts (REIT) provides a tax effective legal structure allowing the public to invest in income generating real estate assets and eventually derive a return from it. Angara also said that establishing REIT in the country would provide liquidity to the real estate market, unlock capital and eventually help the Philippine economy.

Angara highlighted how small and large investors will enjoy advantages from investing in REITs;

First, there is a common trend in markets with successful REIT models: REITs receive tax incentives from the government, but are required to pay out a substantial part of their distributable income by way of dividends to shareholders, in addition to other requirements to ensure investor protection.

Second, these companies provide investors with the opportunity to participate directly in the ownership and financing of large-scale real estate projects at affordable rates of investment.

Thus, investors can make the investments in the REIT without being burdened by the disadvantages of illiquidity, high transaction and management costs that are associated with traditional private real estate ownership.

Third, investors also enjoy the assurance of a fair, transparent and efficient market for buying and selling the REIT securities, because the REIT law will require the listing of the REIT stocks in the local stock exchange. Therefore, it is easier to buy or sell the REIT shares than to directly buy and sell real properties.

Fourth, investment risks are minimized, because the REIT assets are managed professionally by an independent fund manager and property manager.

Finally, cross-border investments in REITs will also encourage strategic foreign investments in the Philippine capital market.

The REIT measure provides that REITs must be stock corporations established in accordance with the Corporation Code of the Philippines, with a minimum paid-up capital of one hundred million pesos (Php100,000,000.00) at the time of its registration.

A REIT must be a listed public company, meaning, it must be listed in an exchange; and to be considered as such, the REIT must, upon and after listing,

1. have at least one thousand (1,000) shareholders each owning one hundred (100) shares of a class of shares who in the aggregate own at least thirty percent (30%) of the outstanding capital stock, and

2. must not be considered a closely-held corporation under section 127(b) of the National Internal Revenue Code of 1997.

"In the context of the Philippine Real Estate market, which has experienced a roller coaster ride in the past years, I think that uneven edges will be smoothed out if we've got an active REIT industry. The time to act is now -- and we need to act quickly," added Angara.