SEC Pitches Capital Market as Funding Source for Real Estate Companies

​The Securities and Exchange Commission (SEC) is encouraging members of the real estate industry to tap the capital market for their growth and financing needs, as it formally launched the streamlined rules for the registration of securities by companies with rental pool arrangements.

​The Commission on May 21 introduced the guidelines on Securing & Expanding Capital in Real Estate Investment Transactions (SEC RENT) in an event titled “Navigating SEC RENT: Empowering Real Estate with Capital Market Opportunities.”

Implemented through SEC Memorandum Circular No. 12, Series of 2024 issued on July 16, 2024, SEC RENT simplifies the registration process for securities of real estate companies engaged in selling or offering investment contracts through rental pool agreements.

Rental pool agreements refer to investment contracts where a property developer sells or offers units in real estate projects such as condominiums, hotels or resorts to the public, provided that buyers contribute the units to a rental pool managed and operated by the company or a third-party operator.

Buyers in a rental pool agreement will receive a share in profits based on agreed conditions, typically by renting out the units to third parties.

“Accounting for 5.6 percent of GDP in 2024, the real estate industry continues to be a vital engine of economic development, with strong interconnections to construction, finance, retail, and tourism,” SEC Commissioner McJill Bryant T. Fernandez said in his opening remarks.

“Given its scale and strategic importance, the real estate sector stands to benefit immensely from deeper participation in the capital market,” he added.

Under the program, the SEC Markets and Securities Regulation Department (MSRD) is required to complete the review of the registration statement of the covered companies within 45 days from filing, pursuant to RA No. 8799, or the Securities Regulation Code (SRC).

Prior to submission to the MSRD, real estate companies are required to secure the approval of the SEC Company Registration and Monitoring Department (CRMD), Corporate Governance and Finance Department (CGFD), Enforcement and Investor Protection Department, Office of the General Counsel, and Office of the General Accountant (OGA) for the registration of securities for the pre-evaluation clearance.

The pre-evaluation clearance will then be submitted to the MSRD, together with the SEC RENT Checklist Form, SEC RENT Form and Prospectus, and all other required exhibits for pre-processing with the MSRD.

Once approved for processing, the application will be handed over to the MSRD, which has to complete the review of the registration statement within 45 days.

The launch was conducted in partnership with the Chamber of Real Estate & Builders’ Association, Inc. (CREBA), an organization with over 4,000 members including firms, individuals and associations involved in the property industry who can take advantage of SEC RENT.

The event also served as an avenue for CREBA members to explore other channels for capital generation, such as securitized real estate offerings, in line with the goal of the SEC to diversify financing options and encourage broader participation in the capital market.

“We probably look at securities offering and all these types of capital market sourcing as for the big players alone. Small companies like us traditionally resort into borrowings as source of funds to continue operating our businesses,” Demetrio L. Posadas, CREBA Vice President for Housing Affairs, said in a mix of English and Filipino in his closing remarks.

“Our organization appreciates the efforts being extended by the SEC for now reaching out not only to big developers, but likewise for making us understand that we, small companies, probably have a chance to participate in this capital market,” he added.

The event also included discussions from SEC representatives from MSRD, CRMD, CGFD, OGA and the Financial Analysis and Audit Department on the requirements under SEC RENT.