SEC starts to regulate sale of condotels, rental pool assets

The Securities and Exchange Commission (SEC) has introduced regulations on the sale of condominium, hotel, resort, dormitory and other real estate assets with rental pool arrangements, citing the need to protect investors’ interest amid the rising trend of property developers pitching investment returns.

This month, the corporate watchdog released Memorandum Circular 12 series of 2024 detailing the guidelines for rental pool deals.

It outlines the rules for the issuance of investment contracts, certificates of participation, profit-sharing agreements and other forms of securities issued by real estate developers in relation to rental pool arrangements.

In rental pool arrangements, buyers acquire units from real estate projects that will be collectively managed by the developer or a third-party operator.

These pooled units will then be rented out and the property buyers will have a share in the rental income.

New layer of requirement

This kind of investment contract is deemed as a security based on the definition set by the Securities Regulation Code. As such, these certificates should be registered with the SEC before the developers could offer them to the public, the regulator said.

This means that on top of the current requirements to get a license set by the Housing and Land Use Regulatory Board, as well as the permitting process at the local government unit, developers intending to sell rental pool assets must now seek clearance from the SEC. The developer of rental pool will be treated in the same way as other companies offering securities to more than 19 investors.

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Prior to filing a registration statement, the SEC mandates that the real estate developer or manager secure approvals from the SEC Company Registration and Monitoring Department, Corporate Governance and Finance Department, Enforcement and Investor Protection Department, Office of the General Counsel and Office of the General Accountant (OGA).

The registrant’s financial statements will be subject to review by the OGA to ensure these are compliant with the Philippine Financial Report Standards and SEC regulations. The applicant will then be required to submit further documentary requirements, which will be subject to evaluation for 45 days.

The registrant may be able to start selling its securities within 10 business days from the date of the effectivity of the registration statement.