Press Release
September 29, 2009

SENATOR ANGARA SPEARHEADS ESTABLISHMENT OF RP's
REAL ESTATE INVESTMENT TRUST (REIT)

Senator Edgardo J. Angara said that REIT will be ratified by both House and Senate today.

The Real Estate Investment Trust Act (REIT) seeks to create the legal and regulatory framework that will govern real estate investment trusts in the Philippines.

Under the proposed bill, a REIT is a stock corporation that invests in income-producing real estate assets like apartments, 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 Senator Angara, chairman of the Senate Committee on Finance.

The creation of a Philippine REIT industry will help the Philippines sustain economic growth through the development of the capital market.

Moreover, REITs level the playing field for real estate actors by allowing small and large investors alike with the opportunity 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.

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. Further, 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.

Through REITs, Senator Angara envisions our country to create a niche in the global real estate market, as well as boost RP's capital market.

He said that the introduction of REITs is expected to facilitate more foreign direct investments in the country. Successes of REITs in Australia, Hong Kong, Japan and Singapore have encouraged more investors in REITs.

"Our stock market is considered one of the oldest in Asia; but its inferiority in size is a matter of national embarrassment. Its small size explains in part why it can be quite challenging for many Filipino workers to get a job and for many small companies to expand its business. In other words, the slow development of our stock market mirrors the slow economic development of our country," said Angara.

He added, "if we fail to introduce Real Estate Investment Trust or REIT into our country, we might find our capital stock further lagging behind our neighbors. It's obvious to see that in the catch-up game we are engaged in, the markets that we are trying to catch-up with are also moving and continuing to develop. The REIT bill includes measures to ensure that we not only move towards the direction our neighbors are moving, but we must also start proceeding at a much faster pace."

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 1000 public shareholders who, in the aggregate, own at least 30% of the company. The company must distribute yearly at least 90% 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 Php300 million.

To encourage the establishment of REITs, the law provides tax incentives to the REIT and its shareholders. The 30% income tax rate will be based on the REIT's net taxable income after deducting the 90% dividend distribution to its shareholders. Under current law, the 30% tax rate is imposed on the net taxable income before dividend distribution.

Transfers of property to the REIT shall be subject to 50% 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 � of 1% 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% dividend tax. In case of OFWs, the exemption shall be good for a period of seven (7) years from the effectivity of the tax regulations implementing the law.

Angara said that establishing REIT in the country would provide liquidity to the real estate market, unlock capital and provide a much-needed boost to the Philippine economy.

"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 have an active REIT industry. The time to act is now -- and we need to act quickly," added Angara.

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