Owners' funding of the construction projects under new rules
The rules for shared construction have changed in Kazakhstan
Today at the plenary session Mazhilis deputies approved the draft Law of the Republic of Kazakhstan "On amendments and additions to some legislative acts of Kazakhstan on issues of equity in housing construction".
The draft law significantly tightens the requirements for equity construction in Kazakhstan. Moreover, the draft law clearly identifies three legitimate ways of shared construction. The explanatory note to the draft law states that these are: a guarantee of equity deposits, financing of projects by second tier banks, construction of the frame of a residential building at the own expense of a construction company.
For the construction by the first model it was suggested to create a system of guaranteeing of equity deposits in the country by creating a guarantee fund on the basis of existing JSC "Kazakhstan Mortgage Guarantee Fund". In accordance with the statutory objectives of the Fund, it provides guarantees to real estate investors in terms of completion of construction of a residential building in case of non-fulfillment of commitments of construction of a residential building by an authorized company. To participate in this process, the construction company must have experience in construction of residential buildings at least 3 years, break-even basis over the past 2 years and debts, which don’t exceed equity capital more than 7 times.
The fund will pose qualification requirements for the participants of shared construction on financial stability, experience and introduce controls over the proper use of money of equity construction participants through engineering companies, as well as using the best practices of risk management.
To do this, a construction company creates an authorized company, the authorized capital of which includes a land plot which is free of any pledges, the construction documents with the endorsement of the expertise, money or construction in progress in the amount of 10% - if the land is owned or 15% - if the land is used on land use rights. Then the Fund evaluates the submitted documents and decides whether or not to grant the guarantee. If a positive decision is issued, the Fund hires engineering company, which carries out technical monitoring, confirms the volume of completed construction works and their compliance with the design and estimate documentation.
The draft law provides for the amendment of existing laws, including the Civil Code (special part), the Budget Code, the Code of Administrative Offences, the laws "On the architectural and urban development activities in the Republic of Kazakhstan", "On Advertising" and "On rehabilitation and bankruptcy".
Mazhilis unanimously approved the draft law in the first reading.
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