A framework for fractional real estate investments: The Financial Regulatory Authority (FRA) has issued a new regulatory framework that sets the stage for fractional ownership of real estate units through real estate investment funds (REIF), according to a statement from the authority.

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The rationale: The framework aims to regulate and formalize fractional real estate investments, which make real estate investments more accessible.

You need to prove your competence before being approved to invest: Under the regulations, interested investors need to pass a knowledge test approved by the FRA before getting the green light to invest. The test aims to ensure that investors are aware of the associated risks when it comes to fractional real estate investments.

Transparency is the name of the game: Digital platforms through which investors can invest in REIFs are required to disclose updates such as fund issuance data, financial statements, dividends schedules, ins. policies, breaches of investment policies, and any material events related to fund activities.

The framework allows investors to exit before the fund reaches its maturity under certain conditions — including using available cash reserves or attracting new subscriptions to meet redemption requests. However, the total amount of units that can be redeemed is limited to 20% of the fund’s total issued units each year. Once redeemed, these units must either be sold to new investors or cancelled within a year. During this holding period, redeemed units will not hold voting or dividend rights.

Protection for investors: All contracts and investment documents will be electronically archived with FRA-authorized entities, and unit prices will be regularly published — following valuations from FRA-authorized entities as well.

We saw this coming: We heard back in January that the FRA was studying a new regulatory framework that would govern fractional investments in real estate.

More regulatory changes to come? The FRA and Finance Ministry have been weighingamendments to REIF regulations that could make the funds more attractive — including scrapping the 22.5% capital gains tax on property sold to REIFs and loosening a rule requiring funds to invest at least 80% of their portfolios in real estate assets or shares in real estate companies.

The groundwork for REIFs has already been laid, with Azimut and MNT-Halan receiving thegreen light earlier this year to set up a EGP 250 mn REIF, with plans to expand it to EGP 2 bn over two years. Similarly, Misr Real Estate Assets Management CEO Maha Abdel Razek told EnterpriseAM in February that the company is preparing to launch its first real estate fund soon.

ICYMI- Proptech platforms Nawy, Madinet Masr’s Safe, and operator of the Farida platform Sakr have requested licenses from the FRA in June to set up companies that manage real estate investment funds as well as legal entities that carry out promotion and underwriting services. The platforms had submitted feasibility studies to the FRA and had already begun to adapt their operations to comply with investment fund regulations.

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