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Equity construction in Kazakhstan Printable version

Last update: 09.03.2023

men in helmets look at the construction site

Each of us dreams of own real property and there are various options for its acquisition. You can get a housing from the communal housing stock according to a waiting list at a local executive body, build a detached house at your own expense or take part in shared-equity construction.

Shared-equity construction in Kazakhstan is widespread, which is not a surprise given that the real estate market grows along with the need for real estate among citizens. Shared-equity construction has a number of advantages, the main of which is the low price compared to secondary housing. However, there are certain risks, for example, a lengthy construction process of a residential building or deception on the part of a real estate developer (authorized company) during execution of a contract or non-compliance with expectations. In the article, you will learn what precautions should be taken to protect oneself from unforeseen situations when purchasing real property through shared-equity construction.

Pursuant to the Law of the Republic of Kazakhstan "On Equity Participation in Housing Construction" as of April 7, 2016, equity participation in housing construction is a relationship between the parties regulated by an agreement on equity participation in housing construction. In other words, one party pays money and the other one builds a real property and transfers it to the party that paid.

An agreement on equity participation in housing construction is an agreement concluded between an authorized company and an equity holder that regulate the legal relations of the parties regarding participation in housing construction, in which one party undertakes to ensure the construction of an apartment building and transfer a share in an apartment building to a second party upon completion of construction, while another party undertakes to make payment and accept a share in an apartment building.

An equity holder is an individual (except for foreigners staying temporarily) or a legal entity that has concluded an agreement on equity participation in housing construction in order to obtain a share in an apartment building.

An agreement on equity participation in housing construction, amendments and (or) additions thereto, as well as assignment of claims agreement are subject to registration at a local executive body at the location of an apartment building upon recommendation of an authorized company using a unified information system for equity participation in housing construction in accordance with the procedure provided for in Article 12 of this the Law. 

Equity participation in housing construction is arranged in one of the following ways:

  • obtaining a guarantee from a Single Operator;
  • participating in a second-tier bank project;
  • attracting money from equity holders after construction of the framework of an apartment building.

It is prohibited to attract money from individuals and legal entities for the construction of apartment buildings in other ways.

Organization of equity participation in housing construction through obtaining a guarantee from a Single Operator

To carry out activities for arrangement of equity participation in housing construction through obtaining a guarantee from a Single Operator, a housing developer should comply with the following requirements:

  • have experience in construction of multi-apartment residential buildings, including as a customer, contractor (general contractor) in aggregate, for at least three years, with a total area of at least eighteen thousand square meters during construction in cities of republican significance, the capital and at least nine thousand square meters when constructing in other administrative and territorial units;
  • have assets remaining after deduction of short-term and long-term liabilities for the last two financial years according to financial statements confirmed by an auditor's report;
  • a value of the coefficient calculated by the ratio of debt and equity capital should not exceed seven during the entire period of construction of an apartment building before its acceptance into operation.

To arrange equity participation in housing construction through obtaining a guarantee of a Single Operator, an authorized company should have:

  • a land plot owned on the right of temporary paid land use (lease) provided by the state or on the right of ownership;
  • design specifications and estimates of the project for construction of an apartment building with a positive statement issued based on a comprehensive extradepartmental expertise;
  • money planned for spending in accordance with Article 20 of this Law, and (or) construction in progress, confirmed by acts of work performed, in the amount of at least ten percent of the project cost if a land plot belongs under an ownership right, or in the amount of at least fifteen percent of the project cost if a land plot belongs under the right of temporary paid land use (lease) provided by the state;
  • money to pay the commission for reviewing documents as well as a guarantee fee under the guarantee agreement;
  • a contract for construction of an apartment building.

If a real estate developer and an authorized company comply with the requirements established by Article 8 of this Law, a Single Operator checks the documents on the construction project of an apartment building in accordance with the procedure approved by an authorized body and enters into a security provision agreement.

The concluded security provision agreement is the basis for attracting shareholders' money and does not require a real estate developer and an authorized company to obtain permission to attract shareholders' money from a local executive body.

Arrangement of equity participation in housing construction through participation in the project of a second-tier bank.

To arrange equity participation in housing construction through participation in the project of a second-tier bank, a real estate developer should have experience in construction of multi-apartment residential buildings, including as a customer, contractor (general contractor) in aggregate, for at least three years, with a total area of at least eighteen thousand square meters during construction in cities of republican significance, the capital and at least nine thousand square meters when constructing in other administrative and territorial units;

To arrange equity participation in housing construction through participation in the project of a second-tier bank, an authorized company should have:

  • a land plot owned on the right of temporary paid land use (lease) provided by the state or on the right of ownership;
  • design specifications and estimates of the project for construction of an apartment building with a positive statement issued based on a comprehensive extradepartmental expertise;

If a real estate developer and an authorized company comply with the requirements established by Article 9 of this Law, a real estate developer and (or) an authorized company apply to a second-tier bank to obtain a decision of a second-tier bank on the readiness to finance the construction of an apartment building for an amount sufficient to complete the construction

Upon readiness to finance the construction of an apartment building, a second-tier bank enters into an agreement with an engineering company.

In case if a real estate developer and an authorized company comply with the requirements established by Article 9 of this Law, a real estate developer and an authorized company apply to a local executive body of the region, city of republican significance, capital, district, city of regional significance to obtain permission to attract money from equity holders in accordance with the procedure established by Article 18 of the Law

Upon conclusion of an agreement on equity participation in housing construction, a second-tier bank is recognized as a trustee of equity holders when foreclosing on mortgaged property and its sale.

Arrangement of equity participation in housing construction as a way to attract money from equity holders after construction of an apartment building framework

In order to carry out activities for arrangement of equity participation in housing construction by attracting money from equity holders after the construction of an apartment building framework, a real estate developer is obliged to build a multi-apartment residential buildings with a total area of at least sixty thousands of square meters during construction in cities of republican significance, the capital and at least thirty thousand square meters during construction in other administrative and territorial units over the past five years and put it into operation, including as a customer, contractor (general contractor) in aggregate, on the territory of the Republic of Kazakhstan. Also, the total experience of a developer's subsidiaries is taken into account.

To arrange equity participation in housing construction as a way to attract money from equity holders after construction of an apartment building framework, an authorized company should have: 

  • a land plot owned on the right of temporary paid land use (lease) provided by the state or on the right of ownership;
  • design specifications and estimates of the project for construction of an apartment building with a positive statement issued based on a comprehensive extradepartmental expertise;
  • completed framework of an apartment building, confirmed by the engineering company report;
  • contract with an engineering company.

In case if a real estate developer and an authorized company comply with the requirements established by Article 10 of this Law, a real estate developer and an authorized company apply to a local executive body of the region, city of republican significance, capital, district, city of regional significance to obtain permission to attract money from equity holders in accordance with the procedure established by Article 18 of the Law

After obtaining permission to attract money from equity holders, an authorized company will organize the construction of an apartment building by attracting the money of equity holders in accordance with the requirements of Article 20 of the Law.
 In case of non-fulfillment or improper fulfillment by an authorized company of obligations to complete the construction of an apartment building, equity holders have the right to initiate bankruptcy proceedings of an authorized company in accordance with the legislation of the Republic of Kazakhstan on solvency recovery and bankruptcy.

In case of bankruptcy of an authorized company, equity holders have the right to form a housing construction cooperative in accordance with the housing legislation of the Republic of Kazakhstan to complete the construction of an apartment building.

According to the above three options, in order to carry out activities for arrangement of equity participation in housing construction, a real estate developer established an authorized company or acquires one hundred percent of voting shares (participation shares in an authorized capital) of another legal entity to carry out activities for no more than one project for the construction of an apartment building

At the same time, a real estate developer has the right to make responsible an authorized company that has fulfilled its obligations for the construction and commissioning of the previous project for the construction of an apartment building, or another legal entity a sole founder (participant) of which he is in accordance with Article 15 of this Law.

Moreover, monitoring over construction progress and targeted use of equity holders' money, verification of the volumes of work performed within the design cost is carried out by an engineering company.

Rights and liabilities of equity holders

An equity holder has the right to:

  • get information from an authorized company;
  • cede the rights of claim under the agreement on equity participation in housing construction in the manner determined by the civil legislation of the Republic of Kazakhstan;
  • demand the proper execution by an authorized company of the terms of an agreement on equity participation in housing construction.

An equity holder is obliged to:

  • deposit money to a bank account of an authorized company in a non-cash manner in accordance with the agreement on equity participation in housing construction;
  • timely fulfill the terms of an agreement on equity participation in housing construction;
  • accept a share in an apartment building in the presence of a registered certificate of acceptance of an apartment building into operation within thirty calendar days from the date of receipt by an equity holder of a notification from an authorized company with the signing of a share transfer agreement;
  • in case of change of actual address and (or) other personal data, notify an authorized company in writing about it within thirty calendar days.
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