SEC issues guidelines regulating rental pools

The Securities and Exchange Commission (SEC) wants to regulate the sale of properties with rental pool agreements amid an upward trend in renting out properties.

On Wednesday, the regulator said that it had issued Memorandum Circular No. 12, Series of 2024 or “Securing and Expanding Capital in Real Estate Investment Transactions” (SEC RENT) last 16 July to establish guidelines for the issuance of various forms of securities related to rental pool agreements.

Rental pool agreements or investment contracts involve the sale or offer of units in real estate projects such as condominiums, hotels, resorts, or dormitories by a property developer to prospective buyers.

Buyers contribute their units to a rental pool managed by the company or a third-party operator, and in exchange, they receive a share of the income earned from renting out the units to third parties.

SEC registration before IPO

According to the Securities Regulation Code, such investment contracts, certificates of participation, or participation in a profit-sharing agreement are considered securities and must be registered with the Commission before they can be offered to the public.

Real estate developers or managers must obtain approvals from several departments within the Commission, including the 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), before filing their registration statement with the Markets and Securities Regulation Department (MSRD).

The OGA reviews the company’s financial statements to ensure compliance with Revised SRC Rule 68, the Philippine Financial Reporting Standards, and other relevant SEC issuances.

Pre-evaluation clearance

Upon satisfactory review, the company receives pre-evaluation clearance.

After completing pre-filing activities, the company submits the pre-evaluation clearance, SEC RENT Checklist form, SEC RENT Form, Prospectus, and other required exhibits to the MSRD for pre-processing.

Once accepted for processing, the MSRD initiates a 45-day review period upon payment of the necessary fees.

Following favorable consideration of the registration statement by the Commission En Banc and the company’s compliance with additional requirements, the MSRD issues an Order of Registration and Permit to Sell Securities to the Public.

Public offering of the securities must commence within 10 business days from the effectivity of the registration statement. Failure to do so results in the cancellation of the registration statement.