Egypt Drafts Realty Law To Tighten Developer Oversight, Protect Buyers

Egypt is preparing to overhaul regulation of its real estate development market under a draft law that would establish the Egyptian Federation of Real Estate Developers and introduce new rules governing developer classification, unit sales, buyer protection and stalled projects.

 

Under the proposed legislation, developers would be required to open a separate bank account for each project or development phase. All payments collected from buyers under sales contracts would have to be deposited into the designated account and could only be used for the relevant project or phase.

 

Withdrawals from each project account would be linked to the construction schedule and the actual rate of completion. These would be determined on the basis of a report prepared by the project’s appointed consultant and approved by the Egyptian Federation of Real Estate Developers.

 

According to a preliminary copy of the draft law reviewed by Daily News Egypt, the Ministry of Housing is consulting developers on the proposed provisions before the legislation is submitted to the Cabinet.

 

Prior Approval Required Before Marketing Projects

 

The draft would require developers to obtain prior approval from the federation before advertising units for sale, marketing projects or participating in real estate exhibitions.

 

Developers would also have to deposit amounts specified under the relevant regulations into each project’s designated account, taking into account the size of the project and its development costs.

 

The measures are intended to strengthen oversight of customer funds and ensure that money collected from buyers is directed towards the projects for which it was paid.

 

Two Funds Proposed To Protect Buyers

 

The draft law proposes the establishment of two independent funds to protect customers who contract with real estate developers.

 

One fund would cover customers dealing with registered real estate developers, while the other would protect customers dealing with companies classified as “deemed real estate developers”.

 

The Prime Minister would determine the management structure of each fund, contribution rates, the risks covered and the rules governing compensation payments.

 

The proposed funds are part of a wider framework aimed at reducing risks for property buyers and providing mechanisms to deal with stalled projects and failures to meet contractual obligations.

 

Mandatory Classification Based On Project Size

 

Companies operating in the sector would be divided into two categories — “real estate developers” and “deemed real estate developers” — based on the nature and size of their projects.

 

The first category would include companies developing residential projects and related activities on land of at least five feddans, as well as commercial, administrative, service and tourism projects covering at least one feddan.

 

Companies developing projects below these thresholds would fall into the “deemed real estate developer” category, provided they have previously completed projects covering at least three feddans and meet requirements relating to experience, financial solvency and their record of violations.

 

Existing developers would be required to regularise their status within one year of the effective date of the law’s executive regulations.

 

Federation Registration To Become A Condition For Project Approvals

 

Registration with the federation would become a prerequisite for developers seeking approval for their projects.

 

Companies applying for registration would have to include real estate development among their corporate purposes, provide evidence of land ownership or allocation, demonstrate financial solvency and establish that they have not been subject to a final bankruptcy ruling.

 

Administrative authorities would also be prohibited from approving land subdivisions or issuing project-related licences until they had verified that the company was registered with the federation and had obtained the appropriate classification.

 

The federation would maintain two electronic registers — one for real estate developers and another for companies classified as “deemed real estate developers”.

 

Registration and classification information would be publicly available free of charge and updated monthly, allowing prospective buyers to verify a developer’s status before entering into a contract.

 

Federation To Monitor Market And Settle Disputes

 

The proposed federation would have wide-ranging responsibilities, including classifying companies, establishing a professional code of conduct, settling disputes, monitoring real estate prices and preparing periodic reports on market activity.

 

The government is seeking to create a more structured regulatory framework for the real estate development industry as the sector has expanded and concerns have increased over developers’ ability to complete projects and deliver units on schedule.

 

The proposed framework would also give the federation a central role in monitoring market practices, strengthening professional standards and improving transparency between developers and buyers.

 

New Mechanisms Proposed For Stalled Projects

 

The draft law sets out procedures for dealing with developers that fail to implement their projects.

 

Initially, the developer would receive a formal notification and be given an opportunity to resume construction. If the developer failed to respond or take corrective action, the federation could arrange for another company to complete the project at the original developer’s expense or resort to one of the proposed protection funds.

 

If the federation did not intervene, the competent administrative authority could assign the project to one or more developers registered with the federation, in accordance with rules to be set out in the executive regulations.

 

The proposed provisions come as the government has begun identifying stalled real estate projects and assessing their status amid complaints from some buyers over delays in the delivery of units.

 

CBE Monitors Real Estate Sector Financing

 

The preparation of the draft law also coincides with regulatory efforts by the Central Bank of Egypt (CBE) to monitor bank financing extended to the real estate sector, including the relationship between financing and actual project implementation rates.

 

The proposed framework would subject developers’ financial capacity, use of customer funds and progress in project execution to greater scrutiny, while establishing mechanisms intended to protect buyers if projects encounter financial or operational difficulties.