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Equity construction in Kazakhstan Printable version

Last update: 11.12.2018

Each of us dreams about his own property, and for its acquisition there are various possibilities. You can get housing from a communal housing fund in order of priority through the local executive body, you can also purchase housing in the framework of the housing construction program "Nurly Zher", build an individual dwelling house at your own expense or take part in shared construction.

Shared construction in Kazakhstan is a fairly common practice, which is not surprising given the growing real estate market and as a reason for the need for citizens. The share construction has a number of advantages, the main of which is the low price in comparison with the secondary housing. At the same time, there are certain risks, for example, a long wait for the immediate construction of an apartment building or deceit on the part of the builder (the authorized company) when signing a contract or inconsistency with expectations. In this article, you will learn what precautions should be taken to protect yourself from unforeseen situations when acquiring real estate through equity construction.  

According to the Law of the Republic of Kazakhstan "On Shared Participation in Housing Construction" of April 7, 2016, equity participation in housing construction is a relationship of the parties based on the agreement on equity participation in housing construction. In simple words, you pay money, and the housing is built and transferred to you.

The agreement on share participation in housing construction is a contract concluded between an authorized company and an equity investor regulating the legal relationships of the parties related to share participation in housing construction, under which one party undertakes to ensure the construction of a dwelling house (residential building) and to transfer the share in a dwelling house (residential building) to the second party upon completion of construction, and the second - to make payment and accept the share in the dwelling house (residential building).

A shareholder is an individual (with the exception of temporarily staying foreigners) or a legal entity that has concluded an agreement on equity participation in housing construction with a view to obtaining a share in a dwelling house (residential building).

The agreement on share participation in housing construction is concluded in writing and is considered concluded from the moment of its registration with the local executive body at the location of a dwelling house  (residential building) in the manner provided for in Article 12 of this Law. 

The share participation in housing construction is organized in one of the following ways:

  • obtaining guarantee of the Guarantee Fund;
  • participation in the project of a second-tier bank;
  • attraction of money of co-investors after the construction of the frame of a dwelling house (residential building).

           It is prohibited to attract money from individuals and legal entities for the construction of a dwelling house (residential buildings) in other ways.

Organization of equity participation in housing construction by way of obtaining guarantee from the Guarantee Fund

In order to carry out activities related to the organization of equity participation in housing construction by way of obtaining a guarantee from the Guarantee Fund, the developer must comply with the following requirements:

  • have an experience of the realized facilities of construction of residential buildings, including as a customer, contractor (general contractor) in aggregate, not less than three years, a total area of not less than eighteen thousand square meters when building in cities of national importance, the capital and at least nine thousand square meters in construction in other administrative-territorial units;
  • to have a break-even activity for the last two fiscal years according to its financial statements, confirmed by an audit report;
  • the value of the coefficient calculated by the ratio of debt to equity should not exceed seven during the entire period of construction of a dwelling house (residential building) before it is put into operation

For the organization of equity participation in housing construction by way of obtaining a guarantee from the Guarantee Fund, an authorized company must have:

  • a land plot owned by the right of temporary paid land use (rent), granted by the state, or on the right of ownership;
  • design and estimate documentation of the project for the construction of a residential building with the positive conclusion of a comprehensive non-departmental examination;
  • money planned for expenditure in accordance with Article 20 of this Law, and (or) construction in progress, confirmed by certificates of work performed, in the amount of not less than ten percent of the project cost in the event that the land plot belongs by the right of ownership, or in the amount of not less than fifteen percent of the project cost in case when the land plot belongs by the right of temporary paid land use (rent) granted by the state;
  • money to pay a commission for reviewing documents, guarantee fees under a guarantee agreement;
  • contract for the construction of a dwelling house (residential building).

If the developer and the authorized company comply with the requirements set forth in Article 8 of this Law, the Guarantee Fund shall verify documents on the project for the construction of a dwelling house (residential building) in accordance with the procedure approved by the authorized body and conclude a guarantee agreement.

The concluded agreement on granting the guarantee is the basis for attracting the money of the equity holders and does not require the developer and the authorized company to obtain permission to raise money from the local executive body.

Organization of equity participation in housing construction by the way of participation in a second-tier bank project

To carry out activities related to the organization of equity participation in housing construction through participation in a second-tier bank project, the developer must have the experience of the realized facilities of construction of residential buildings, including as a customer, contractor (general contractor) in aggregate, not less than three years, a total area of not less than eighteen thousand square meters when building in cities of national importance, the capital and at least nine thousand square meters in construction in other administrative-territorial units.

For the organization of equity participation in housing construction by the way of participation in a second-tier bank project an authorized company must have:

  • a land plot owned by the right of temporary paid land use (rent), granted by the state, or on the right of ownership;
  • design and estimate documentation of the project for the construction of a residential building with the positive conclusion of a comprehensive non-departmental examination.

If the builder and the authorized company comply with the requirements set forth in Article 9 of this Law, the developer and (or) the authorized company shall apply to the second-tier bank to receive a decision of the second-tier bank on the readiness for financing the construction of a dwelling house (residential building) in an amount sufficient to complete the construction.

If the financing of a dwelling house (residential building) is ready, the second-tier bank concludes the contract with the engineering company.

In the event that the developer and the authorized company comply with the requirements set forth in Article 9 of this Law, the developer and the authorized company shall apply to the local executive body for obtaining permission to raise the money of the equity holders in the procedure established by Article 18 of this Law.

Since the conclusion of the agreement on equity participation in housing construction, the second-tier bank is recognized as a trustee of equity holders when applying for foreclosure and sale.

Organization of equity participation in housing construction by attracting the money of equity holders after the construction of the frame of a dwelling house (residential building)

 

In order to carry out activities related to the organization of equity participation in housing construction by means of attracting the money of co-investors after the construction of the frame of a dwelling house (residential building), the developer must, within the last five years, including as a customer, a contractor (general contractor) collectively, operation on the territory of the Republic of Kazakhstan residential houses (residential buildings) with a total area of at least sixty thousand square meters when building in cities of national importance, the capital and not men is, thirty thousand square meters and construction in other jurisdictions. This takes into account the total experience of the builder's subsidiaries.

For the organization of equity participation in housing construction by attracting the money of equity holders after the construction of the frame of a dwelling house (residential building) an authorized company must have:

  • a land plot owned by the right of temporary paid land use (rent), granted by the state, or on the right of ownership;
  • design and estimate documentation of the project for the construction of a residential building with the positive conclusion of a comprehensive non-departmental examination;
  • presence of the completed construction of the frame of a dwelling house (residential building), confirmed by the report of the engineering company;
  • contract with an engineering company.

In the event that the developer and the authorized company comply with the requirements set forth in Article 10 of this Law, the developer and the authorized company shall apply to the local executive body for obtaining permission to raise the money of the equity holders in the procedure established by Article 18 of this Law.

After obtaining permission to raise money from equity holders, the authorized company organizes the construction of a dwelling house (residential building) by the way of attracting the money of equity holders in accordance with the requirements of Article 20 of this Law.

If the authorized company does not fulfill or improperly fulfills its obligations to complete the construction of a dwelling house (residential building), the interest holders have the right to initiate the bankruptcy procedure of the authorized company in accordance with the legislation of the Republic of Kazakhstan on rehabilitation and bankruptcy.

In the event of bankruptcy of an authorized company, interest-holders to complete the construction of a dwelling house (residential building) are entitled to form a housing construction cooperative in accordance with the housing legislation of the Republic of Kazakhstan.

In the above three ways for the implementation of activities for the organization of equity participation in housing construction, the developer creates an authorized company that simultaneously carries out activities for not more than one construction project.

At the same time, the developer has the right to involve an authorized company that has fulfilled its obligations to transfer interest shares to a shareholder in a dwelling house (residential building) in accordance with Article 15 of this Law.

In addition, monitoring the progress of construction, the targeted use of money co-investors, verification of the amount of work performed within the project cost is carried out by an engineering company.

 

Rights and duties of equity holders

equity holders have the right to:

  • receive information from the authorized company;
  • cede the rights of claim under the agreement on equity participation in housing construction;
  • require the proper performance by the authorized company of the terms of the contract on equity participation in housing construction.

equity holder is obliged to:

  • to transfer money to the bank account of the authorized company in a non-cash order in accordance with the agreement on share participation in housing construction;
  • timely implement the terms of the agreement on equity participation in housing construction;
  • to accept a share in a dwelling house (residential building) in the presence of a registered certificate of acceptance of a dwelling house (residential building) in operation within thirty calendar days from the date the holder receives notification from the authorized company with the signing of a share transfer agreement;
  • in case of changing the actual address and (or) other personal data, notify the authorized company about it within thirty calendar days.
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