Amended rules to protect REIT small investors, ensure firms reinvest capital in PHL–Dominguez

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A new set of amended rules and regulations for companies enticing Filipinos to buy into their ventures via the Real Estate Investment Trust (REIT) law will ensure that whatever fresh capital they can raise will be reinvested exclusively in the country while protecting their small investors such as middle-class families and overseas Filipino workers (OFWs), Finance Secretary Carlos Dominguez III has said.

Dominguez said the implementation of the 11-year-old REIT law under this new set of amended implementing rules and regulations (IRR) will be a “big step forward” in President Duterte’s goal of achieving financial inclusion for all law-abiding Filipinos, as it will offer a secure opportunity for small investors to participate in the thriving property and infrastructure development sectors.

The law was designed to enable real estate firms to place their assets in stock corporations where the public can invest in by purchasing shares in these businesses.

The shares of the company can also be traded at the Philippine Stock Exchange (PSE).

This law’s main purpose is to allow both small and large investors to own real estate assets, thereby presenting an alternative and secure investment instrument for middle-income families and overseas Filipino workers (OFWs) while providing real estate companies a cheaper source of capital as they help develop the Philippine capital market.

“Today, we deliver to our economy a powerful financial instrument to fund property development and drive the economy forward. We democratize wealth by opening access for thousands of small investors wanting to be shareholders in secure and profitable real estate projects,” Dominguez said at the ceremonial signing on Monday of several relevant documents on the REIT law held at the Department of Finance (DOF) office in Manila.

These documents were signed during the DOF event: 1) the Revenue Regulations of the Bureau of Internal Revenue (BIR) on the REIT; 2) the amended implementing rules and regulations (IRR) of the REIT law released by the Securities and Exchange Commission (SEC); and 3) the amended Listing Rules for the REIT of the PSE.

Dominguez, along with SEC chairman Emilio Aquino and commissioner Ephyro Amatong, BIR Commissioner Caesar Dulay and deputy commissioner Marissa Cabreros, and PSE president-CEO Ramon Monzon were among the witnesses and signatories at the event.

Also among those present were AAMBIS-OWA Rep. Sharon Garin, the chairperson of the House Committee on Economic Affairs; Finance Undersecretary Antonette Tionko; SEC Commissioners Kelvin Lester Lee, Javey Paul Francisco, and Karlo Bello; SEC Secretary Armando Pan, Jr.; PSE Chairman and former Trade Secretary Jose Pardo; PSE Chief Operating Officer Roel Refran; and representatives of the Capital Market Development Council.

Dominguez said the signing of this new set of rules and regulations on the REIT is “proof that the Duterte administration is not only pro-poor and pro-middle class, but also business-friendly, as we are aware that this will translate into more economic gains for all law-abiding Filipinos.”

These economic gains include attracting new investments, modernizing infrastructure, especially in the countryside, and creating new jobs, which, he said, are among the priority concerns of President Duterte, in step with his ultimate goal of ensuring decent lives for all law-abiding Filipinos.

On top of requiring the reinvestment in the domestic market of funds raised from REIT, the SEC also relaxed the minimum public ownership (MPO) requirement to 33 percent as what the law provided, from the previous IRR’s requirement of 40 percent.

“This will open up attractive investment opportunities and broaden access to the capital market. This will allow big players in the real estate business to raise more capital to further invest in our country, a win-win situation for all,” Dominguez said.

Republic Act (RA) No. 9856 or the REIT law was signed 11 years ago and its IRR were released later on, but this new asset class was met with tepid response from the investor community because of several contentious provisions.

When President Duterte was elected into office in 2016, Dominguez directed the SEC to review the IRR to make it more palatable to investors and ensure that funds raised from REITs will be reinvested in the country instead of being “squirrelled away” to foreign markets and countries.

“Today, we bring the law to life,” Dominguez said. “We finally resolved the issues that hindered the Philippine REIT to take off.”

RA 9856 specifies both minimum dividend requirements to attract small investors as well as tax incentives that were the problematic aspects of the law, Dominguez said.

This could be why the law failed to attract investors in the past administration, he said.

“We took on the challenge but had to be sure that the tax incentives would not be prone to abuse. We had to be very clear in our revenue regulations. This is why we needed to recast the existing revenue guidelines,” Dominguez said.

“We likewise wanted to be sure that the large investment funds to be raised using this mechanism will be reinvested exclusively within the country’s real estate and infrastructure sector. The reinvestment requirement is the regulatory framework, which ensures that the funds invested by Filipinos will stay in our domestic economy and will contribute to the improvement of our country’s infrastructure, rather than the benefits being squirreled away to other markets and countries,” he added

Dominguez said the REIT law will enable the creation of investment trusts that purchase, develop and operate income-generating real estate assets.

Filipinos with extra income can then invest or participate in the flourishing real property business by buying shares in REITs instead of having to buy real estate assets themselves, he said.

By encouraging companies offering REITs to invest their fresh capital in infrastructure ventures, he said the revised IRR has attuned the law to President Duterte’s signature program “Build, Build, Build.”