As the world recovers from the economic slump brought about by the COVID-19 pandemic, the real estate market takes part as a significant catalyst for economic growth. In the Philippines, the real estate market is experiencing an upward trend as demand in commercial and residential properties surges. Alongside this positive projection are the emerging avenues in real estate investments which could possibly hold high potential for returns and profitability — from the traditional real estate investment of owning properties, to participating in non-traditional real estate investments that are now being ventured into as a growing opportunity in the real estate market.
Recognizing this evolving trend, the Securities and Exchange Commission (“SEC”) issued SEC Memorandum Circular No. 12 on Securing & Expanding Capital in Real Estate Investments Transactions (“SEC RENT”) on 16 July 2024. The Circular, in relation to the Securities Regulation Code (“SRC”), recognizes non-traditional real estate investments, such as investment contracts, certificates of participation, profit-sharing agreements, and other forms of securities issued by real estate developers and/or managers (“Registrant”) in relation to rental pool agreements, as securities. Rental pool agreements refer to investment contracts whereby the Registrant sells or offers units in real estate projects to prospective buyers on the condition that the buyers shall contribute the units to a rental pool operated by the Registrant. In turn, the buyers are entitled to receive a share of the profits based on agreed conditions, usually through a share of rental income.
The Circular provides the following registration guidelines over such securities before one can sell or offer them to the public:
Pre-filing Activities. The necessary corporate actions and approvals must be obtained and clearances from the relevant departments of the SEC secured.
OGA Review. The Office of the General Accountant (“OGA”) shall conduct a pre-evaluation and review proper of the Registrant’s audited financial statement (“AFS”). The necessary registration fee assessed by the Markets and Securities Regulation Department (“MSRD”) shall also be paid. The Registrant shall be given five (5) days to respond to the OGA’s review result on its review proper. Otherwise, the OGA’s findings shall become final and shall be referred to the MSRD.
Documentary Filing Requirements. Copies of the OGA Pre-Evaluation Clearance Form, SEC RENT Pre-evaluation Checklist Form, Form SEC RENT and Prospectus, and all required exhibits shall be submitted to the MSRD for review. Upon payment of the necessary registration and other fees, the Registrant shall secure a copy of the Notice of Filing of the Registration Statement (“RS”) from the MSRD and cause its publication in two (2) newspapers of general circulation in the Philippines for two (2) consecutive weeks. An affidavit of Publication shall be submitted to the MSRD thereafter.
MSRD Review. The MSRD shall then review the RS within forty-five (45) days after the date of payment of the assessed registration fee. Within fifteen (15) days from commencement of the review period, the MSRD shall issue its comments. Within twenty (20) days from the issuance of the comment letter, the Registrant shall submit its compliance thereof. Should the Registrant wish to request a meeting with the MSRD, it shall submit a written request at least two days before the proposed date and within the twenty (20)-day period. Not later than the forty-fifth (45th) day, the MSRD shall present before the SEC En Banc the application for its consideration.
- Pre-filing Activities. The necessary corporate actions and approvals must be obtained and clearances from the relevant departments of the SEC secured.
- OGA Review. The Office of the General Accountant (“OGA”) shall conduct a pre-evaluation and review proper of the Registrant’s audited financial statement (“AFS”). The necessary registration fee assessed by the Markets and Securities Regulation Department (“MSRD”) shall also be paid. The Registrant shall be given five (5) days to respond to the OGA’s review result on its review proper. Otherwise, the OGA’s findings shall become final and shall be referred to the MSRD.
- Documentary Filing Requirements. Copies of the OGA Pre-Evaluation Clearance Form, SEC RENT Pre-evaluation Checklist Form, Form SEC RENT and Prospectus, and all required exhibits shall be submitted to the MSRD for review. Upon payment of the necessary registration and other fees, the Registrant shall secure a copy of the Notice of Filing of the Registration Statement (“RS”) from the MSRD and cause its publication in two (2) newspapers of general circulation in the Philippines for two (2) consecutive weeks. An affidavit of Publication shall be submitted to the MSRD thereafter.
- MSRD Review. The MSRD shall then review the RS within forty-five (45) days after the date of payment of the assessed registration fee. Within fifteen (15) days from commencement of the review period, the MSRD shall issue its comments. Within twenty (20) days from the issuance of the comment letter, the Registrant shall submit its compliance thereof. Should the Registrant wish to request a meeting with the MSRD, it shall submit a written request at least two days before the proposed date and within the twenty (20)-day period. Not later than the forty-fifth (45th) day, the MSRD shall present before the SEC En Banc the application for its consideration.
- Approval/rejection of Application. Upon the SEC En Banc’s favorable consideration, the MSRD shall issue a pre-effective letter stating the conditions to be complied with. Upon compliance, the MSRD shall issue an Order of Registration and/or Permit to Sell Securities to the public. The offering must commence within ten (10) business days from the date of the effectivity of the RS, otherwise, the RS shall be cancelled. The sale shall continue until the end of the offering period or until the sale is terminated by the Registrant. A written notification of completion or termination of the offering shall be filed with the MSRD within three business days from such completion or termination.
While the real estate landscape continues to evolve, various mechanisms and a variety of real estate transactions become available. Inevitably, stakeholders would explore new ways of investing in the real estate market. Consequently, regulations over these transactions would tighten to protect the public from deceit, misrepresentations, and other fraud and to avoid economic disruption.
As more and more non-traditional real estate investment transactions arise, the line as to whether such transactions are covered by the registration requirements set forth in the Circular becomes blurry. The relevant stakeholders must therefore be wary as any violation can be dealt with and penalized accordingly by the SEC without prejudice to criminal and administrative liabilities. With this in mind, it is worth examining whether one is already engaging in a real estate investment transaction subject to registration.
This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.
Iris Gizelle S. Agus is an Associate of the Corporate and Special Projects Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).
[email protected]
(632) 8830-8000