SECP allows Modaraba Companies to deal or trade in Real Estate

The Securities and Exchange Commission Pakistan (SECP) has given permission to Modaraba companies (companies that utilize a non-interest Islamic financial system) to deal in real estate development projects across Pakistan.

The following conditions must be followed by Modaraba companies with up to one-third of their total assets invested in real estate:

• The investments shall be made only in assets recognized by development authorities, i.e. Karachi Development Authority (KDA), Capital Development Authority (CDA), Rawalpindi Development Authority (RDA), Lahore Development Authority (LDA) and/or any other development authority in any city of Pakistan, along with a No Objection Certificate (NOC) by the relevant authority.
• The investments can be done with the intention of developing properties for rental or development, or a combination of both objectives.

In the case of Modarabas that operate for the specific purpose of real estate investment, or where the investment in real estate crosses one-third of the total assets of the Modaraba, the following additional conditions must be followed:

• At least two directors of the Modaraba company should have a minimum of five years’ experience dealing with real estate projects.
• A valuation report from an independent values should be procured.
• The prospectus of the Modaraba company should: contain information relating to the management experience of sponsors of the Modaraba company in the field of real estate; the type of real estate project to be undertaken; potential locations of the real-estate, investment objectives; valuation report; feasibility study; the legal status of the property; funds required; sponsors’ contribution; and compliance with the lock-in period requirement for the sponsors.