The Ministry of Economy and Finance (“MEF”) issued Prakas No. 089 SHV on 20 January 2020 relating to the Management of Real Estate Development Business (“Prakas No. 089”) which extends and amends the rules and procedures relating to housing developer licenses which were previously governed by Prakas No. 965 dated 24 August 2016 (“Prakas No. 965”).
Prakas No. 089 distinguishes between three different types of licenses or permits depending on the activity performed by the real estate developer:
- Residential development business license/permits;
- Co-owned building development business license/permits; and
- Land parcel development business license/permits.
This Prakas refers to a license if delivered by the MEF and a permit if delivered by the Capital-Provincial Economic and Financial Department. The conditions and requirements to obtain either of these licenses or permits are detailed in Prakas No. 089.
Prakas No. 089 expressly provides that these three activities are subject to obtaining a license or permit if the real estate developer performs a business activity for the purpose of a sale or long term lease. Therefore, Prakas No. 089 reintroduces leasing activities which were excluded by Prakas No. 965.
However, Prakas No. 089 refers only to perpetual leases (i.e. a lease with a duration of between 15 and 50 years).
Consequently, it seems that license or permit shall not be required if the developer performs business operation in the purpose of short term lease (i.e. lease shorter than 15 years).
Furthermore, the Prakas creates a new activity (i.e. the activity of splitting lands) which shall now obtain a license or permit if the real estate developers intends to develop this activity. For this activity, the real estate developer shall deposit, in a form of a cash deposit or bank guarantee, an amount corresponding to 5% (five per cent) of the total investment value.
For the residential development and co-owned building development business licenses, there are two types. However, these are no longer linked to the need of prepayment to carry out the project but rather as to whether the project is completed or not before starting the sale process.
- Type 1 is granted to real estate developers that have completed construction of their project(s) and then announce the conducting of sales;
- Type 2 is granted to real estate developers that have started construction of their project(s) and simultaneously announced it for sale.
The conditions on parties’ obligations, the sale and purchase agreement, commercial advertising, reporting and inspections are much more detailed in Prakas No. 089.
Prakas No. 089 does not abrogate the previous Prakas No. 965. On the contrary, only provisions of Prakas No. 965 which are contrary to this Prakas No. 089 shall be abrogated.
If you require any assistance or information regarding Prakas No. 089, please do not hesitate to contact us.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
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