The Capital Markets Board ("CMB") has recently effected changes to its rules on real estate certificates.
The amendments to Communiqué No VII-128.2 on Real Estate Certificates (the "Real Estate Certificates Communiqué") were published in the Official Gazette numbered 30255 dated 29 November 2017 and introduce important changes intended to promote consistent quality standards and price stability and, possibly in response to market conditions, provide increased front-end access to issuance proceeds (the "Amendments").
The Amendments introduce a requirement for independent units which can only be used once construction of the entire structure completes, such as independent units of a building or a building complex, to satisfy the same construction quality standards as other parts of that structure which are not subject to a real estate certificate issuance. The change intends to ensure that construction quality standards are applied consistently between independent units subject to a real estate certificate issuance and other independent units.
The Amendments also allow price stabilisation measures to be implemented with respect to public issuances if this option is provided in the offering circular. Price stabilisation schemes will be subject to price stabilisation rules of the CMB which will apply to the extent appropriate.
Lastly but perhaps most importantly, the Amendments increase the amount of issuance proceeds that can be transferred to issuers prior to the start of construction. According to the Real Estate Certificates Communiqué, issuance proceeds are required to be held in escrow with a commercial bank to be released in arrears during the construction period. Previously, issuers were allowed to receive 10% of issuance proceeds prior to the start of construction, a further 80% in the form of progress payments and the remaining 10% on completion. Pursuant to the Amendments, issuers will now be able to receive up to 25% of issuance proceeds in advance, 65% in the form of progress payments and, as before, the remaining 10% on completion. Additionally, issuers can elect to receive all issuance proceeds in advance if they procure a bank guarantee to secure redemption and penalty costs or provide completion insurance.
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