In the wake of the real estate sector in Pakistan suffering from challenges such as weak investor confidence, unfair business practices, lack of transparency and minimal financial inclusion, the key regulators — the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have been urging the government to provide an legal framework to bring the real estate sector into the formal economy holistically, reported a national daily.
The National Assembly recently passed the bill of including the real estate sector under the Companies Act of 2017.
Section 456 of the said act is pending clearance from the Pakistani Senate to become the governing law meant to overrule over all past laws and bylaws of provincial and federal development authorities.
Under the law, it will be mandatory for companies and cooperatives to get a clearance from the SECP before inviting or accepting finances from the general public.
“Notwithstanding anything contained in this Act or any other law, any company (project) which invites advances from the public for a real estate project shall comply with the provisions of this section”. The companies engaged in real estate sector would now be governed like any other company defined in the companies’ ordinance. Furthermore, no real estate projects can be announced unless an approval has been sought from the SECP and all necessary approvals, permissions, NOCs etc., of the concerned authorities have been notified.The approvals pertain to general, special and local laws, having jurisdiction over the area under which the real estate project is being undertaken.In additon ,such companies would also need prior approval of the SECP before making any publication or advertisement of real estate projects.
They would also not be entitled to accept any advances or deposits in any form whatsoever against any booking to sell, offer for sale, give invitation to persons to purchase any land, apartment or building without approval of the SECP and concerned authorities.
Under the new law, companies would also not be eligible to accept a sum against purchase of the apartment, plot or building, as the case may be, as an advance payment from a person without first entering into a written agreement for sale with such person.
In case of a nominal fee for application — an allowed exception — they would then need to maintain and preserve such books of account, records and documents in the manner as may be specified.
They would also be required to deposit any sum obtained from the allottees, from time to time, in a separate escrow account opened in the name of the project, and comply with the SECP directions regarding accounting frameworks. They would not be allowed to start any activity which had not been previously been allowed by the SECP.
The law requires that the escrow accounts be dedicated exclusively for carrying out the project and no attachment shall be imposed on the payment of such escrow accounts for the benefit of creditors of the real estate company. The real estate company shall recognise its income in accordance with International Financial Reporting Standards notified by the regulator.
The SECP would be bound to provide copies of any returns or information submitted by real estate companies free of cost to the concerned authority (CDA, RDA, KDA etc) on request, to enable them to regulate the real estate project under their jurisdiction in accordance with the applicable laws.
These conditions will be in addition to, and not in derogation of, the law.
The concerned engaged in the project shall continue to exercise its authority in a manner that is line with the relevant law.Any violations can result in level 3 on the standard scale, leading to the project being wind up.
