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New Controls for Real Estate Invest

New Controls for Real Estate Investment Funds
The activity of Real Estate Investment Funds is an important activity throughout the world, significant for its impact on the increase in real estate investment, and in providing new investment tools for smaller investors, enabling them to diversify the risks of investment in the real estate sector. The Capital Market Law No. 95 of 1992 has regulated such funds for many years, on the basis that they are simply another type of specialized funds regulated by law and monitored by the Egyptian Financial Supervisory Authority (“EFSA”). This set-up has made it increasingly difficult for the funds to operate in the Egyptian marketplace. In 2014, the Minister of Investment issued decision No. 22 of 2014 to amend the rules and conditions for the establishment of real estate funds, including helping to overcome these problems and open the door for the establishment of real estate funds on a sound legal basis. On 12 March 2014, EFSA updated the regulatory framework for real estate funds by issuing its decision No. 34 of 2014 to which REITs must abide (the “Decision”).[1]
New Investment Controls
The new Decision commits real estate funds to maintain productive assets in the amount of 70% of the total assets of the Fund; “productive assets for returns,” are those assets that generate an income periodically during the period of retention of the Fund without requiring them to sell. The Decision also sets out some examples of productive assets, namely:
  • Real estate assets that generate or are expected to generate revenues, whatever their purpose;
  • Securitisation bonds issued in return for the rights of a financial portfolio of loans to finance real estate investment;
  • Bonds issued by mortgage companies;
  • Securities listed on the stock exchange and issued by real estate companies, of which most of their assets or work falls in the field of real estate development;
  • Shares of companies not listed on the Egyptian stock exchange but whose assets (at least 80%) are tied up in real estate, and whose ownership is not less than two-thirds of the company;
  • Investments in other real estate funds.
The Decision also stipulates that the Fund shall not increase investment in real estate demand deposits and treasury bills to more than 30% of the total assets of the Fund, and that real estate assets as a whole not exceed 95% of the total assets of the Fund. However, as an exception from the foregoing, the text of the Decision states that the Fund is committed to the limits and proportions referred to above beginning from the start of the second fiscal year following the establishment of the fund, which means that the real estate fund - from its inception and until the end of the first fiscal year - may bypass the above percentages until the completion of its investment plan. The final Article of the Decision requires publication in the Official Gazette and implementation by the next working day; in this case, 10 April 2014.   [1] EFSA Board of Directors’ Decision 34/2014 on the regulatory framework for real estate investment funds, Egyptian Gazette, Issue No. 82, 9 April 2014.
The activity of Real Estate Investment Funds is an important activity throughout the world, significant for its impact on the increase in real estate investment, and in providing new investment tools for smaller investors, enabling them to diversify the risks of investment in the real estate sector. The Capital Market Law No. 95 of 1992 has regulated such funds for many years, on the basis that they are simply another type of specialized funds regulated by law and monitored by the Egyptian Financial Supervisory Authority (“EFSA”). This set-up has made it increasingly difficult for the funds to operate in the Egyptian marketplace. In 2014, the Minister of Investment issued decision No. 22 of 2014 to amend the rules and conditions for the establishment of real estate funds, including helping to overcome these problems and open the door for the establishment of real estate funds on a sound legal basis. On 12 March 2014, EFSA updated the regulatory framework for real estate funds by issuing its decision No. 34 of 2014 to which REITs must abide (the “Decision”).[1]
New Investment Controls
The new Decision commits real estate funds to maintain productive assets in the amount of 70% of the total assets of the Fund; “productive assets for returns,” are those assets that generate an income periodically during the period of retention of the Fund without requiring them to sell. The Decision also sets out some examples of productive assets, namely:
  • Real estate assets that generate or are expected to generate revenues, whatever their purpose;
  • Securitisation bonds issued in return for the rights of a financial portfolio of loans to finance real estate investment;
  • Bonds issued by mortgage companies;
  • Securities listed on the stock exchange and issued by real estate companies, of which most of their assets or work falls in the field of real estate development;
  • Shares of companies not listed on the Egyptian stock exchange but whose assets (at least 80%) are tied up in real estate, and whose ownership is not less than two-thirds of the company;
  • Investments in other real estate funds.
The Decision also stipulates that the Fund shall not increase investment in real estate demand deposits and treasury bills to more than 30% of the total assets of the Fund, and that real estate assets as a whole not exceed 95% of the total assets of the Fund. However, as an exception from the foregoing, the text of the Decision states that the Fund is committed to the limits and proportions referred to above beginning from the start of the second fiscal year following the establishment of the fund, which means that the real estate fund - from its inception and until the end of the first fiscal year - may bypass the above percentages until the completion of its investment plan. The final Article of the Decision requires publication in the Official Gazette and implementation by the next working day; in this case, 10 April 2014.   [1] EFSA Board of Directors’ Decision 34/2014 on the regulatory framework for real estate investment funds, Egyptian Gazette, Issue No. 82, 9 April 2014.