Sherif Samy

Real Estate Investments Funds in Egypt

In light of the recent regulatory amendments

13 April 2014

Investment Funds Regulatory Changes

Closed end funds: The fund is a company and has its own legal personality

Possibility of calling up capital in tranches

Allowing closed end funds to offer new issues of the same fund

Activation of Real Estate Investment Funds (REIFS)

Introduction of fixed income funds

Activation of exchange traded funds (ETFs)

Rules for Shariaa monitoring committees

The Real Estate Investment Fund Closed end fund aiming to invest in:

Real Estate: lands to be developed and built and buildings to

be developed, sold, leased or exploit by any mean.

Financial Assets associated with the real estate activity: bonds

of real estate companies, Securitization bonds of mortgage

portfolios, Securities of real estate companies,……

The fund may accomplish operations related to its activity i.e.

licensing, building, renewal, rent and exploitation of its real estate

assets

Reselling of such real estate assets may not be the only purpose of

the fund

Percentage of certificate holders owning 10% or more of fund’s

certificates shall not be more 75% of total fund’s certificates

Fund’s related parties

Real Estate Investment

fund

Fund Manager

Fund Admin

Services

Other service

providers

Developer

Fund’s investment policy

The fund’s investment policy stipulated in the prospectus or

information memorandum – as case may be- shall disclose:

Type of properties

Concentration ratio of each category of assets

Nature of targeted revenues and its percentage to total fund’s revenues

Geographical diversification

Dividend distribution policy

Structure of fund’s assets

≥ 2/3 capital

Determinants of funds investment policy

Percentage of real estate assets(including financial assets related to real estate activity) to total fund’s assets

Percentage of revenue generating assets to total fund’s assets

Percentage of ownership in a single real estate project to total fund’s assets

Percentage of total ownership in listed companies to total fund’s assets

≤ 30%

≥ 70%

≤ 95%

≤ 20%

Fund manager’s responsibilities

• The preparation of a feasibility study for any real estate project in which the Fund intends to invest

• Signing the technical services contracts with specialized real estate developing companies

• Signing technical services contract with real estate management \ operations companies

• Providing the necessary competencies to minimize project risks associated with cost overruns and implementation delays

• Assigning real estate assets valuation to two real estate appraisers prior to transacting

Board of Directors Responsibilities

In addition to the general duties of the board of directors in the other

funds -stated in article 163 of the capital market law executive regulation -

the BOD of a real estate fund shall approve all contracts and decisions that

the fund’s company is a party of

Contract with the developer

Contract with real estate management company

Marketing contract of real estate assets of the Fund

Ownership contracts of real estate assets of the fund

Insurance contracts of real estate assets of the fund

Methodology & content of appraisal reports

Methodology of appraisal report

And ends with the preparation of the evaluation report in accordance with the requirements and terms and conditions

agreed upon and set forth in the scope of work

The evaluation process begins by determining the scope of work of

the appraisal expert

The report Shall:

Be clear and accurate and written in a non-misleading manner

Contain sufficient information to enable those who are addressed to understand it correctly

Reveal any unusual or exceptional assumptions or additional conditions or specific considerations affecting the assessment and value of the property

The minimum contents of the appraisal report

Fund Admin Services co. Responsibilities In light of article 167 of the Capital Market law executive regulations the

fund admin services company shall perform the following for REIFs:

Periodically undertaking the valuation of the total assets of the Fund (at

least every three months) based on appraisal reports prepared by two

property appraisers, acting independently from each other.

Safekeeping all documents related to the Fund's assets, namely:

Ownership Contracts

for property and land

Fund’s assets

management contracts

administrative licenses and

permits

Appraisal reports

Decisions of the Investment

Committee of the Fund Manager

Loan, mortgages or

guarantees contracts

Condition to be met by the fund’s founders

Fund company founders equity ownership:

The contribution of legal persons of the total capital of the Fund

Percentage of Egyptian founders

≥ 75%

≥ 51%

Eligible founders

Financial institutions not less than 25% of the capital

Companies engaged in financial activities, other than mentioned in

the previous item

Investment promotion & developmental entities

Qualified investors

≥ 51%

Valuation of fund’s assets and certificates

Fund’s assets and securities, owned at the time of preparing

financial statements according to Egyptian Accounting

Standards, shall be valued in light of the fund’s scope of

investment.

In all cases, financial statements foot notes shall include the

basis of measurement and the accounting standard that have

been adopted to determine the book and market values of the

assets and securities.

EFSA’s Direction

Developing Egypt’s Real Estate Appraisal mechanism

The need to adopt appraisal standards for unlisted

investments.

- Financial appraisal standards.

-Preparing and approving the first Egyptian standards for real

estate appraisal.

- Determinants of classifications of appraisal experts.