ACCEPTABLE INVESTMENT

[bizman]

Dear Respected gurus
I want to seek opinion of members here on a friend that will submit his extension application on friday. He invested 200k as shared into a new business, he is however involved solely in construction of new homes. He is confused with the policy guide that mentioned property development and management as not acceptable. I told him its ok but he is still feeling he is not safe. I think since he buys land and build from begining to completion, it is allowed.

Can gurus advise please. Do we have people in the forum involved in this kind of business, construction trade.

[mohsensari]

Please see A21 on Page 76 of policy guidance.
I think your friend fall in property development category
Which is restricted, Unless he has a construction company and he has invested directly into company.

[bizman]

yes he established a construction company and invest in it.

[marcnath]

It depends on what the nature of the business is. If it actual construction business - i.e contracting to a builder to do the work, then there should be no issues.

Actually I think the guidance is quite clear on the definitions.

We define property development as any development of property (real estate) owned by the applicant or his business to increase the value of this property with a view to earning a return either through rent or a future sale, or both.
We define property management as the management of property (regardless of who owns it - whether or not it is owned by the applicant or his business) for the purposes of renting it out or for resale.
The principle is that business income must be generated from the supply of goods and/or services, and not derived from the increased value of property or any income generated from property, such as rent.

Based on your post in the other thread, I think the chances of the investment being rejected is quite high. The key reason is the words "property (real estate) owned by the applicant or his business" which is what seems to be the situation with your friend. If he/his business bought the land and developed it (built houses) to increase the value, then it comes under property development.

[mohsensari]

The construction need to have clients ( costumers ) and then build (or give the services) for them not for itself.
If the construction company buy the land and build for itself , it’s very clear the reason of investment is to increase value of property or income from renting. In this way HO will deduct any value of land and construction on the land from total investment.

[bizman]

It depends on what the nature of the business is. If it actual construction business - i.e contracting to a builder to do the work, then there should be no issues.

Actually I think the guidance is quite clear on the definitions.

We define property development as any development of property (real estate) owned by the applicant or his business to increase the value of this property with a view to earning a return either through rent or a future sale, or both.
We define property management as the management of property (regardless of who owns it - whether or not it is owned by the applicant or his business) for the purposes of renting it out or for resale.
The principle is that business income must be generated from the supply of goods and/or services, and not derived from the increased value of property or any income generated from property, such as rent.

Based on your post in the other thread, I think the chances of the investment being rejected is quite high. The key reason is the words "property (real estate) owned by the applicant or his business" which is what seems to be the situation with your friend. If he/his business bought the land and developed it (built houses) to increase the value, then it comes under property development.

Thanks Macnath, however he is relying on the portion of the guide that says you can move on to any other business you like but must be seen to have invested the required amount either 50k or 200k in a newly incorporated company. My opinion is that the guide is wholly talking about the amount invested and not the business itself. Some people value their investment in property and put it forward as investment, it will not be accepted. But if you invest 200k into a limited liability company and engage in building works, I think it should be alright. Others opinion will be appreciated.