Companies Involved in Fractionalization of Real Estate Assets are Violating the Law: SECP

June 12, 2024

Companies Involved in Fractionalization of Real Estate Assets are Violating the Law: SECP

The Securities and Exchange Commission of Pakistan (SECP) has recently issued a stern warning against companies and startups involved in the illegal fractionalization of real estate assets. This practice, which includes selling fractions of properties to the public through dubious investment schemes, is a violation of the law.

SECP’s Formal Notification

In a formal notification, the SECP identified several companies involved in these illegal activities:

Name of Company	Platform	Website Address
Xstate Technologies (Private) Limited Company	Xstate Beta	https://www.xstate.com
Beacon Marketing (Private) Limited	Beacon crowd	https://beaconcrowd.com
International Hospitality Investment Group (Private) Limited	IHIG fractions	https://ihigfractions.com
Dao Proptech (Private) Limited	DAO PROPTECH	https://daoproptech.com
Neo Cassa (Private) Limited	Neo CASSA	http://www.neocassa.com

Lack of Required Approvals

According to the SECP, none of these platforms have obtained the necessary approvals to conduct such activities under the regulatory sandbox regime of the Commission. Consequently, their operations are deemed unlawful. Section 87(2) of the Securities Act, 2015, explicitly states that no entity can sell securities to the public without prior clearance. Furthermore, unlawful activities are grounds for winding up these companies under Section 301 of the Companies Act, 2017.

Legal Actions and Public Warning

The SECP has adopted legal measures against these firms for engaging in unauthorized business activities. Additionally, the Commission has taken steps to alert the public about the risks associated with investing in these unlawful schemes. In the best interests of the public, the SECP strongly advises individuals to avoid spending their hard-earned money on such dubious investment opportunities.

Understanding Fractional Real Estate Investment

Fractional real estate investment involves dividing a property into smaller shares that can be sold to multiple investors. This concept is appealing because it lowers the barrier to entry for real estate investments, making it accessible to a broader audience. However, without proper regulation and legal frameworks, it can lead to significant financial risks and potential fraud.

Risks Involved

The primary risk associated with fractional real estate schemes is the lack of transparency and regulatory oversight. Investors might be misled by false promises of high returns and secure investments, only to find that their money has been misused or lost. Without the necessary approvals and safeguards, these schemes can operate as Ponzi schemes, where returns are paid to earlier investors using the capital from new investors, rather than from profit earned by the operation.

SECP’s Role in Protecting Investors

The SECP’s intervention is crucial in safeguarding the interests of investors. By identifying and taking action against these unlawful activities, the SECP aims to maintain the integrity of the financial markets and ensure that investors are not exploited. The Commission’s regulatory oversight is designed to create a safe and transparent investment environment.

How to Protect Yourself

Investors should exercise caution and conduct thorough due diligence before investing in any real estate scheme. Here are some steps to protect yourself:

Verify Legitimacy: Always check if the company is registered and has the necessary approvals from regulatory bodies like the SECP.
Research: Look into the company’s history, track record, and reviews from other investors.
Seek Professional Advice: Consult with financial advisors or legal experts to understand the risks involved.
Avoid High-Risk Schemes: Be wary of schemes that promise high returns with little risk, as they are often too good to be true.

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Conclusion

The SECP’s action against companies involved in the illegal fractionalization of real estate assets highlights the importance of regulatory compliance in protecting investors. At Makani Marketing, we emphasize the need for transparency, integrity, and adherence to legal standards in all real estate investments. By staying informed and cautious, investors can make safer and more profitable investment decisions.

If you are looking for legitimate and secure real estate investment opportunities, Makani Marketing is here to guide you every step of the way. We prioritize your financial safety and aim to provide you with reliable investment options that adhere to all regulatory requirements. Contact us today to learn more about how you can invest safely in Pakistan’s real estate market.