Analysts: New SEC rules to make condotels pricier

The newest regulation from the Securities and Exchange Commission (SEC) will result in higher prices of condotels and other rental pool arrangements, potentially turning off investors, according to analysts.

“Additional regulations would entail additional costs to the developers, which could then be passed to buyers, leading to higher prices,” said AP Securities Inc. research analyst Jose Antonio Cipres, who noted developers run the risk of poor sales.

Juan Paolo Colet, managing director at investment bank China Bank Capital Corp., added it was now “cumbersome, time-consuming and costly” for real estate developers to offer rental pool arrangements.

“Since those contracts will now be treated as securities, the affected property firms will have to go through the full process for registering securities and pay for the associated SEC fees and other costs,” Colet said.

Under rental pool arrangements, buyers acquire units that are collectively managed by the developer or a third-party operator. In return, buyers receive a share in the developer’s income earned through renting out the units.

Based on the SEC’s new rules, rental pool agreements are investment contracts and, therefore, securities that need to be registered with the commission before being offered to the public.

The guidelines cover investment contracts, certificates of participation, profit-sharing agreements and other forms of securities issued by real estate developers in relation to rental pool agreements, such as condotels. Condotel is a portmanteau of the words “condominium” and “hotel.” These short-term rentals are managed like a hotel.

The regulator’s latest schedule of fees show that a filing fee for securities ranges from P500,000 to P812,500.

Mid-priced properties most disadvantaged

Cipres pointed out that sales of mid-priced properties may be hit the hardest by the additional costs. He said target customers would find it more difficult to pay a higher price versus clients of premium properties.

But for Colet: “If the buyers see that the potential net return is still high enough, then they might find it worthwhile to invest.”

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Consunji-led DMCI Homes and DoubleDragon Corp., through Hotel101, are among the developers currently offering rental pool arrangements.

The Inquirer sought DMCI Homes’ comment but it could not provide a statement at press time as it was still reviewing the SEC’s order.

Cipres, however, is not discounting the benefits of the new rules in the long-term.

“[This] type of transparency could boost investor confidence in the real estate market,” he said.

Under SEC Memorandum Circular No. 12, which provides the new guidelines, the developers must first secure a certificate of good standing, pre-evaluation clearance, and certificate of no pending case from the SEC’s various departments before filing a registration statement for the securities it will offer to the public.