PROPERTY DEVELOPMENT SCHEMES (“PDS”) : THE LEGAL FRAMEWORK

Introduction

The Property Development Scheme or PDS was created by the Government in place since December 2014, as a successor to the previous schemes, that is, (i) Integrated Resort Schemes (IRS) and (ii) Residential Estate Schemes (RES).

We, therefore, have a situation whereby the previous IRS and RES will continue to benefit from the advantages granted to them under the previous schemes. The Investment Promotion Act 2000 (IPA 2000) was amended to cater for the new PDS which was set up after an exercise of consultation between Government and stakeholders earlier this year. Under the powers conferred by the IPA 2000 to the Minister of Finance and Economic Development, the latter enacted the Investment Promotion (Property Development) Scheme Regulations 2015 which provide the framework for the development of the new PDS.

The figures show that about 1,500 residential units were sold by January 2015 through the previous IRS and RES programmes. As a reminder, the RES was introduced after the success of the IRS when it was felt that smaller landowners should also benefit from property development and bring in Foreign Direct Investment (FDI) to the island. Numerous criticisms was, however, laid against those two schemes, the main one being that we were creating ghettos for the rich foreigners who were living by themselves and among themselves and not sharing or participating in Mauritian life. New ideas, therefore, had to be introduced.

After the world financial crisis, the slowdown of the property market and the wish to better integrate foreigners investing in real estate, it was felt that a new scheme was needed and so was born the PDS in May 2015. The Investment Promotion (PDS) Regulations 2015 were designed to govern the new set up.

The objects and legal basis of the PDS

The objects of the Scheme are to promote inclusive development and provide for living, employment and leisure opportunities for Mauritians, members of the Mauritian Diaspora and foreigners. The PDS also aims to ensure that the development accrues to the neighbouring communities and to small entrepreneurs. The Regulations define who can be a PDS developer, what a PDS certificate is and what are the obligations and responsibilities of the PDS Company.  It provides the legal framework for the implementation of the PDS project and the organization for the PDS Social Fund. Finally, the Regulations enact the due process for the acquisition and resale of property whether residential or non-residential.

The idea of the PDS is to develop luxury residences on areas ranging from one to fifty arpents and restricted to freehold land. Each project should develop at least 6 residential properties of high standing and also provide public and green spaces for better social relationship. The PDS needs to provide leisure and commercial facilities and evidently daily management services thereafter.

Finally, social contributions are required whereby the PDS Company will provide Rs 200,000 per residential property built. Registration duty is simplified and is at a flat 5% now.

The guidelines of the PDS

Such Guidelines have been published by the Board of Investment (BOI) and are available on its website at www.investmauritius.com. The Guidelines provide the whole framework starting with the application for a PDS up to the issue of the PDS Certificate. They provide for the type and extent of residential property to be acquired and the procedure to acquire the PDS Certificate. It is a 27-page technical document but the keen promoter or buyer will find his way whilst reading through it. It also provides for duties and taxes, which are payable and the steps to be followed when the contract is governed by provisions of the VEFA (Vente en l’Etat Futur d’Achevement) and the GFA (Garantie Financière d’Achèvement).

It is apparent that many of the previous procedures relating to IRS and RES have been positively streamlined and promoters are keen to move. What, however, remains a headache to the PDS promoter is the obligation to sell 25% to a Mauritian resident or member of the Mauritian Diaspora. Whilst the original idea was probably laudable so as to mix the Mauritian and foreign buyers, it is in practice unworkable. No one may start a project if he has not secured 25% of his properties to Mauritians and the immediate question is why would Mauritians pay a more expensive price to buy within the PDS Scheme when they can buy land and build anywhere in Mauritius. Very serious representations have been made to Government and to the BOI to amend the law or bring in more flexibility. Several PDS projects are unfortunately on standby and the reaction of the Government is much awaited.

Marc Hein and Khemila Narraidoo
Barristers at Juristconsult Chambers