Image by alancleaver_2000 via FlickrFinancial IQ Philippines Quick Hit(s):
Depending on how the regulation on REIT turns out, this investment vehicle might be a good source of regular income via dividends (similar to annuity).
THE BUREAU of Internal Revenue is being urged to fast-track the drafting of the implementing rules for a law that will allow investors to treat property investments like mutual funds—a policy that will boost local financial markets and attract more investments from abroad.
According to Forensic Law and Policy Strategies Inc. (Forensic Solutions), the law on real estate investment trusts (REITs) will strengthen the domestic capital market and attract investments in the real estate sector by making big-ticket projects more attractive to both foreign and local retail investors.
Forensic Solutions said that versions of the REIT law had been in place in the United States since the 1960s. Certain Asian economies like Malaysia, Hong Kong and Singapore have in recent years also passed similar legislation.
“Presently, Hong Kong, Singapore and Malaysia are reaping the benefits of REITS as an investment vehicle with a weighted average dividend yield of 8.1 percent, 8.9 percent and 3.7 percent, respectively,” the think tank’s latest policy paper pointed out.
A REIT (pronounced “reet”) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90 percent of their income, which may be taxable, to investors. This was designed to provide a similar structure for investments in real estate as mutual funds provide for investment in stocks.
Locally, the new law on REITs provides tax breaks for investors like reduced documentary stamp tax rates, lower withholding taxes and exemptions from the payment of the corporate income tax, said former Justice Secretary Alberto Agra and lawyer Maricel Baltazar in the group’s taxation policy paper.
“Admittedly, granting tax incentives will erode the government’s collection efforts, said Agra and Baltazar. “However, if the government sincerely intends to develop the capital market, level the playing field and give opportunities for retail investors, the government must give a chance and encourage the development of REITs as a possible source of investment and another avenue for foreign investors to invest in real estate in the country.”
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