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Real Estate Developers Vs. Egyptian Government Authorities Who wins?!

Real estate

Prologue 

A substantial portion of the Egyptian economy is drawn from the real estate business. The real estate industry has attracted investors in recent years and is probably a rather steady area to trade within.

Egypt’s real estate market has allegedly expanded by 8% since the start of 2022 despite the lately pandemic’s negative effects on all facets of the nation’s economy. Egypt’s real estate market has recovered significantly from the recent outbreak in 2020. The protection of customers from real estate providers and developers is thus a crucial component of an equitable market in such a large and expanding industry. In order to achieve a stable economy, the newly issued decrees and laws significantly contribute to the protection of consumers’ rights in this regard.

But, unfortunately, a range of legal difficulties, possible risks, and complexity might be present in real estate transactions. There are many things to consider when wanting to purchase, sell, or lease a home, from buyers who feel that the property was misrepresented to sellers who may or may not abide by specific deed limitations to all of the laws governing fair housing, antitrust, and other liability concerns.

It might be beneficial to have professional counsel on hand to accompany you through the process and shield you and your company from any potential legal concerns, regardless of how straightforward or complicated your situation is. 

Here are just a few of the common real estate legal matters that our experienced team of real estate attorneys handles regularly: 

Contract Disputes 

When one of the parties disputes the agreed-upon price of a real estate asset, there is a contract dispute. Disputes over the purchase price, closing date, state of the property, type of deed, and other issues may emerge after the initial contract has been signed but before the transaction has been consummated. This can also occur when there is disagreement over closing fees, the interpretation of the contract’s terms, or the application of local laws to the purchase agreement. A real estate purchase agreement is highly complicated, and either party may violate one of its conditions as the sale process develops. The resolution of such disputes requires a skilled attorney and a careful reading of the purchase contract.

False Advertisement 

Misleading or illegal ads for real estate can result in serious legal repercussions. Real estate advertising must adhere to state license rules as well as the Consumer Protection Regulations. These regulations exist to safeguard potential buyers, ensure that the property being sold is exactly as described and prevent the seller from being accused of misrepresenting it. To avoid any potential legal problems, it is crucial to make sure that all of your real estate marketing follow state licensing rules and give a truthful representation of your property, including online.

Misrepresentation 

Misrepresentation, or the intentional or unintentional misstatement of a property feature by the seller or the seller’s representative, is one of the most frequent real estate legal concerns. This could be a problem with the foundation, the property line, or the surroundings. Make sure your home is thoroughly inspected, that you document those sources for the buyer and that they sign a seller disclosure form in order to protect yourself from liability for misrepresentation. By doing this, you can ensure that the buyer is aware of all the terms of the transaction and safeguard yourself from future legal problems.

Regulations for Consumer Protection and the Real Estate Industry 

The Consumer Protection Law was proposed to solve several issues that the previous Law No. 67 of 2006, which established the Consumer Protection Agency (the “CPA”), left unaddressed. The introduction of the Consumer Protection Law supports the government’s initiatives to actively regulate numerous industries and market participants. This particular regulation gives consumers more protection against suppliers and developers when it comes to the purchase and selling of real estate. The Consumer Protection Law, in contrast to the previous law, establishes a stricter regulatory framework by giving the CPA new authority, such as the ability to impose harsh penalties.

A sale contract “shall not include any clauses that permit the seller or its successor to collect any percentages, fees, or commissions from the sale price of the real estate unit or in consideration for a sale upon disposal by the buyer,” according to Article 15 of the Consumer Protection Law.

Any agreement made in any other way is invalid. As a condition for resale, developers used to impose and collect an average commission of 5–10% of the value of units or land plots, which is seen as a significant modification to the earlier law. Additionally, as demonstrated in a recent court case cited in a statement released by the head of the CPA, developers who violate the aforementioned clause could be subject to fines of up to EGP 200,000.  

The article emphasized that the First Circuit of the Cairo Economic Court had found against the developer in Case No. 194 of 2020, fining him EGP 200,000 for improperly charging EGP 30,000 in administrative costs for selling a unit to a new customer. Major developers also don’t typically charge resale assignment fees to owners or mention them in contracts, according to the current standard of practice. However, a buyer may be required to pay maintenance fees for a unit if a developer imposes them, and a seller of a property will be liable to a real estate disposal tax. 

Article 15, which states that “it is prohibited to announce the reservation of real estate units or enter into contracts regarding their sale, or to sell or divide lands prepared for construction, in accordance with the Construction Law No. 119 of 2008,” outlines another significant change to the prior law. Even though the foregoing provision is already coated by Construction Law No. 119 of 2008, the Consumer Protection Law aims to address this industry from the perspective of the consumer by safeguarding them from dishonest or misleading property developer advertisements and avoiding the sale of homes or lands that remain under construction.  Before the enactment of the preceding requirement, the market customarily advertised the sale of units and lands either before obtaining the required permissions or while those permits were being obtained. It is important to note that President Abdel Fattah Al-Sisi of Egypt recently issued a directive that forbids developers from marketing or publicizing any real estate projects until those projects have finished 30% of their work. As a result, this attempts to stop haphazard and illegal construction as well as dishonest business dealings in Egypt’s real estate market.

Recent Egyptian Central Bank Initiatives for the Real Property Sector 

The Central Bank of Egypt (“CBE”) has allocated EGP 100,000,000,000 as part of a mortgage finance initiative that provides low- and middle-income homebuyers with installment plans that can extend to 30 years with a low-interest rate of up to 3%, by President Abdel Fattah Al-directives Sisi’s to help low- and middle-income people. As stated in the CBE Circular dated 4 October 2021, the CBE has also launched a mortgage finance initiative worth EGP 50,000,000,000 for individuals with a monthly income of EGP 40,000 and families with a monthly income of EGP 50,000, amending the mortgage finance conditions for middle-income homebuyers issued on 19 December 2020. The amortization term was extended from 20 years to 25 years with an interest rate of 8% (calculated on a decreasing basis). The maximum net area requirement for a unit, which was formerly 150 square meters, has been eliminated by the aforementioned circular, and the price of a funded unit has been raised to EGP 2,500,000. Additionally, it made it possible for banks to accept alternative finance guarantees in cases when a unit is unregistered, which is prevalent in Egypt’s new urban communities and has historically prevented real estate mortgage players from entering the real estate market in these areas. 

Measures for Consumer Protection During the COVID-19 Epidemic 

At the commencement of the Covid-19 epidemic in early 2020, there was a significant decline in real estate property sales, which surprisingly began to recover in Q1/Q2 of 2021. Since the real estate market is perceived by some investors as being more stable than banks or the Egyptian Stock, they have shifted their money there. In response to the global epidemic, the CBE issued a circular on March 15, 2019, requiring banks to keep delaying institutional and individual customers’ loan payments for a period of six months, with no additional interest or penalties for outstanding debts (such as loans for customer-specific purpose and housing loans). It is crucial to note that there are currently no restrictions requiring developers to postpone installment payments on homes or interest that is owed by homebuyers. On a case-by-case basis, certain real estate developers have, in practice, unilaterally postponed and prolonged installment payments as well as reduced delay penalty fees for consumers.

Role of the Cabinet in Protecting the Consumer within the Egyptian Real Estate Market 

Dr. Mostafa Madbouly, the Prime Minister, issued a new decree no. 2184 of 2022 on the 16th of June, 2022. Such decree stipulated that the state authorities are obligated to include “controls for selling units of real estate development projects to ensure the rights of buyers”, and such controls shall be included in the proposals that offer real estate development projects and attached them also in the appendices of contracts concluded with real estate developers. 

Moreover, the decree specified the controls for selling units of real estate development projects to ensure the rights of buyers, through several articles. Article (1) included a set of definitions, and it stipulated the competent ministry and what is meant by the Ministry of Housing, Utilities, and Urban Communities, and also included the definition of the state authority as the official body responsible for disposition. or contracting, as well as state-owned companies to which the state contributes. 

The decision stated the regulations and standards that are binding on the real estate developer, including opening an independent bank account for the project/phase in which all revenues and expenses of the project/phase are deposited and spent, whether checks or cash, except spending on basic services and facilities outside the framework of the phase and that for projects with a maximum area. 

But, unfortunately, this ministerial decree is binding upon real estate companies only and could not be a legal base that has its legal binding effect in any legal case inside the courtroom as such decree must be followed by legislation issued from the Egyptian Parliament or a legal precedent.  

Therefore, we are suggesting that a new law may be issued to state what the aforementioned ministerial decree stated before to enforce it within the courtrooms against the breached real estate developers and for the benefit of the concerned customers. 

Suggested Amendments to Protect the Two Parties of the Real Estate Industry 

Considering the above, the Developer may postpone signing blank and/or ordinary cheques that guarantee his right till the date of delivery of the concerned unit to the buyer who will check from the fulfillment of the agreed specification inside his real estate unit and then complete the installment process with the Developer, otherwise, both parties may terminate the signed contract between them either for dissatisfaction from the buyer or violating the contracted obligation by the developer or the seller.

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