In an environment of growing pressure over legislating the economy, State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have approached the government to provide a legal framework for the real estate sector. The notion of this development has been to bring the real estate business into the formal economy of the country. This step has been taken by the authorities due to the issues faced by the real estate sector including lack of investor confidence, unfairness and bafflement in the business and lack of financial inclusion.
Recently, the National Assembly of Pakistan passed a bill including the real estate sector under the Companies Act of 2017.
The Section 456 of the act is currently on hold as it hasn’t been approved by the Senate of Pakistan, yet. After the approval of the act, it will become a part of the law intended to overrule every single past, as well as, local law of the federal and provincial development authorities.
Once the law is in action, it will be compulsory for all big and small real estate companies to get the approval of SECP before dealing financially with the 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”
Requirement of SECPs Approval
From now onwards, every real estate company will be treated like all other companies. Moreover, no real estate project can be established until and unless it has the approval and permissions of all the concerned authorities including SECP. These approvals will correspond to only those general and special local laws which have jurisdiction over the concerned area on which the project is being held. Furthermore, such organizations would require earlier approval of the SECP before publishing any advertisement related to their project.
Written Agreement for Advance Payments
The real estate companies would require an approval by the SECP before accepting any advance or deposits in the name of selling, purchasing, or booking any type of land or property. The proposed law forbids the companies from receiving advance money without a written agreement with the customer. In order to receive advance payments, companies will have to generate a written agreement with the person they are dealing with.
Other than that, the companies will have to deposit any sum of money related to a project in a different ‘escrow’ bank account and will also have to coordinate with the SECP laws regarding accounting frameworks. Any activity not allowed by the SECP will have to be approved by the SECP before carrying it out.
The law states that the escrow accounts should be used only for one project at a time. Additionally, this account should not have any link to any other account through which real estate creditors can benefit themselves. The income of the real estate companies should comply with the International Financial Reporting Standards.
SECP will store copies of information regarding real estate projects. In addition, it will provide these copies free of cost to the concerned authorities upon request. These authorities include CDA, RDA, and KDC etc. This will help the authorities to keep check of the real estate projects in their jurisdictions.
Companies failing to abide by the new laws will be dealt with by the authorities. Violation of this law will implement a level 3 violation which will eventually lead to the termination of the project.
Source: Profit Pakistan