REITs: Real Estate and Economic Development

IN OUR COUNTRY, the main tools of financial stability have traditionally been savings, usually through a bank account, and having a job. However, there is another avenue which many Filipinos don’t seem consider at all: investment.

The Bangko Sentral ng Pilipinas’ 2017 State of Financial Inclusion report revealed that 20.4 percent of Filipinos kept P5,000.01 up to P40,000 in the bank, while 13.8 maintained P40,000.01 to P500,000.  Rather than keep their extra funds in savings accounts with lower interest rates, it may be better for Filipinos to allocate their savings in other ways, such as by investing in various companies as a shareholder.

One possible investment that our countrymen could make would be in a REIT, or a Real Estate Investment Trust. A REIT is a company that invests in and earns from the construction, operation and maintenance of real estate. This includes offices, apartment buildings, hotels, warehouses, shopping centers, and even highways — all of which can generate relatively secure income streams.   

REITs are required to distribute 90 percent of their annual income to shareholders. This makes them attractive for middle-income breadwinners and OFWs who can step in with their savings and potentially bolster their own financial standing.  This is what my father, Senator Edgardo J. Angara, and I had in mind when we worked on and shepherded the investment products’ enabling law — Republic Act 9856, or the Real Estate Investment Trust Act.

We worked on this measure during the 14th Congress, between 2007 and 2009. I was serving my second term as Representative of the Lone District of Aurora, while my father was Chairman of the Senate Committee on Banks and Financial Institutions and was the measure’s main sponsor in the Upper Chamber. 

My father and I had vigorous debates during the Bicameral Conference Committee hearings on the measure, particularly on the minimum public float requirement.  I was in favor of a higher float, while my father supported a lower figure, as suggested by industry stakeholders.  A higher public float would have meant more of the REIT’s project would be made available publicly for investment.  In my mind, this was among the more compelling reasons for supporting the measure — allowing greater public participation in an income-producing infrastructure venture. 

The law was enacted in 2009.  But for close to a decade, our financial system was unable to properly launch this investment product, owing to financial and taxations concerns among the agencies involved as well as a lukewarm reception from industry. 

Thankfully, earlier this week, a new set of implementing rules and regulations (IRR) was jointly approved and launched by the Department of Finance (DOF), the Securities and Exchange Commission (SEC), the Bureau of Internal Revenue (BIR) and the Philippine Stock Exchange (PSE). Finally, we now have implementation guidelines that are closer to the spirit of the law, which we crafted. 

The revisions include a lowered minimum public ownership, from 40 percent to 33 percent. The BIR has also amended Revenue Regulations so that the transfer of property to a REIT will be exempt from the 12 percent VAT in exchange for a percentage of share acquisition between the two parties.

It should also be noted that these real estate assets are required to be within the country. A REIT is not allowed to have real estate assets which are not local in nature. These changes ensure that the new investment vehicle will not be prone to abuse, and that benefits from it would go back to our country and economy.

How exactly do REITS benefit our country as a whole? The basic idea is powerful on its own — a company that develops, manages, and maintains real estate assets. That alone ensures infrastructure development. Add to the mix the fact that REITs should now be accessible to investments from middle-class Filipinos with ample savings who are looking to secure their personal financial stability. Reinvestments, too, should also go back to more real estate acquisition and development, ensuring a cycle of expansion that benefits both the country and the investors.

When RA 9856 was enacted in 2009, it was already seen as a game changer within the real estate industry, and in the Philippine economy. Now, with the recent amendments made to make sure it becomes accessible to more Filipinos, it has the potential to become a viable investment tool in a culture where land — its ownership, development, and maintenance — are deeply ingrained in the community and family traditions.
By making REITs within reach of investors from the middle class and below, we are opening up another tool for financial growth and stability to our countrymen. And because of its industry-wide effects, we are also enabling this tool for the nation’s economic development, as well.

*** 

Sen. Sonny Angara has been in public service for 15 years — nine years as Representative of the Lone District of Aurora, and six as Senator. He has authored and sponsored more than 200 laws.  He recently won another term in the Senate.(Email: [email protected]| Facebook, Twitter & Instagram: @sonnyangara)/PN

LEAVE A REPLY

Please enter your comment!
Please enter your name here