Rejuvenating the real estate sector through unified legal and institutional frameworks

In the wake of criminals finding convenient avenues to channel illicit proceeds of crime, the passage of relevant regulations, implementing effective measures in support of compliance and enforcement efforts are no longer optional. International partners have identified the real estate sector as one of the most attractive sectors for criminals to hide proceeds of financial crime.

 In Ghana, the large informal sector exposes the country to abuse by criminals largely due to the use of cash in transactions including real estate transactions. The real estate sector is driven by increasing demand for residential, commercial, hospitality and industrial properties.

Until the passage of the Real Estate Agency Act, 2020 (Act 1047), professionals within the sector were either guided by ethical codes of ethics or were self- regulated to represent segments of the sector.

 However, the passage of the Act has provided a bigger umbrella for the regulation of professionals and operators within the real estate sector. 

Key players in the sector include real estate brokers, agents, developers, and other professionals engaged in real estate’s transactions.

The sector is highly patronised by both international and domestic investors due to its high value, limited transparency particularly with beneficial ownership information disclosures and perhaps perceived ease of transferability of ownership.

The Real Estate Agency Council (REAC)

REAC is a statutory body created by the Real Estate Agency Act, 2020 (Act 1047), to regulate real estate agency practice, commercial transaction in real estates including the sale, purchase, rental and leasing of real estate and related fixed assets and to provide for related matters.

It is also responsible to register and license all real estate practitioners (brokers, agents, service providers) while ensuring compliance with all the relevant legal framework associated with the sector.

The functions of REAC among others is to regulate the real estate sector, monitor for compliance, maintain a national database of all real estate transactions, collaborate with competent authorities in the fight against financial crimes, settle disputes among sector players and prescribe the scale of fees in real estate transaction.

All real estate brokers, agents, developers and professional service providers including lawyers and accountants engaged in real estate transactions are required by law to register and acquire license from REAC before engaging in any real estate transactions.

Since its establishment, REAC has put mechanisms in place by developing supervisory manuals, issuing of licenses to real estate operators and conducting inspections on operators for compliance and monitoring purposes. 

REAC also has a responsibility to conduct due diligence on all operators prior to the issuance of licences. Operators are to identify and verify the true identities of their customers.

Conducting customer due diligence by real estate operators

• Operators are to take adequate steps to confirm the true identities of the customers. This involves checking the authenticity of ID cards against independent/reliable sources including government system generated database.
• Operators are to identify and verify natural persons and legal persons controlling and benefiting from real estate properties (ultimate beneficial owners).
• Operators are to verify the source of funds used in a real estate transaction. 
• Operators are to assess the risks associated with each type of customer, geographical locations, delivery channels and real estate products.
• Operators are to regularly review and update customer information in the course of the relationship and to report any suspicious transactions to the competent authority.

Completing real estate transactions

A real estate transaction is not complete until the parties are issued with a real estate transaction certificate by REAC. Prior to the issuance of Certificate, REAC would check for compliance by ensuring that all real estate mode of payments is concluded by bank cheques, bank transfer, electronic money transfer as well as a sale or purchase agreement among others. All real estate transaction records are to be kept by REAC and operators for at least five years.

Off-site and On-site Inspections by REAC

REAC shall appoint inspectors to embark on both off-site and on-site inspections. These inspectors may for the purposes of inspection enter the offices of real estate operators or request them to produce transactions suspected to be associated with financial crime. Real Estate operators are to request for identification cards issued by REAC from these inspectors prior to cooperating with them. Where operators are in doubt, they are to confirm the identities of these inspectors with REAC and also report any suspicious activities associated with them.

Enforcement efforts by REAC

REAC may suspend license of brokers on administrative grounds. It also has the powers to revoke the license of real estate operators on grounds of fraud or where the broker/agent is not affiliated to a licensed broker, where a broker is convicted by a court of competent jurisdiction for a serious offence, where a brokeracts for more than one party in the same transaction, where a broker acts in the dual capacity of a broker and a principal and charges undisclosed commission from a principal.

All licensed brokers, agents and players are to renew their license annually, failure to renew on time may result in suspension, administrative fines or withdrawal of license.

A real estate operator who advertises or engages in transaction as a real estate broker or agent without license commits an offence and is liable to a term of imprisonment of not less than five years or pay a fine of not less than five thousand unit.

•  
• Ensuring compliance of the Act by Real Estate operators
• In order to ensure effective compliance of the Act by real estate sector operators, REAC is to;
• Set up reportable threshold for all real estate transactions.
• ensure that real estate brokers or agents submit quarterly reports on all real estate transactions
• Ensure that real estate brokers keep records of parties of each transaction including the date, mode of payment, the amount involved, description of the property, the valuation report among others.
• Ensure that real estate brokers submit annual reports to REAC.
• Ensure that real estate operators have mechanisms in place to report suspicious real estate transactions to competent authorities for action. Operators are to provide all relevant information including parties, amounts involved and supporting documentation.

Red flags that may indicate the need for monitoring and reporting

• Customers who prefer the use of cash instead of financial instruments in real estate transactions.
• Real estate transactions conducted by unrelated third-parties.
• Buyers who use very complex financing methods in real estate transactions.
• Customers who either decide to buy or sell above the market value.
• The urgency to resell real estate properties without economic justification.
• Customers who buy real estate properties without inspecting them.
• Where customers refuse to provide identification, source of funds or disclose the identities of beneficial owners.
• BY RITA YEBOAH QUAYSON

The writer is a financial crime specialist

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