Real estate

New real estate regulations – Economy – Al-Ahram Weekly

The government has introduced new regulations for the construction and sale of homes by property developers.

Last week, Prime Minister Mustafa Madbouli presented a set of new rules aimed at regulating the real estate market and protecting consumer rights. The rules set the conditions for the construction of real estate development projects and the sale and delivery of units to consumers.

Under the new rules, property development companies will be required to open a separate bank account for each project. The account will be used exclusively for all expenses and revenues of each phase of the project, with the exception of infrastructure expenses that are not part of a particular phase of larger projects.

Developers will be required to divide their projects into phases, and they will not be able to put units in a phase up for sale until they get official clearance from the Department of Housing. They will also not be able to proceed with a new phase of development until they have demonstrated that they have met the deadline allowed for the previous phase.

“These regulations were developed to protect the real estate market from problems and to prevent consumers from falling victim to mistakes made by certain companies,” said Mohamed Al-Bustani, president of the New Cairo Developers Association. and the New Administrative Council. Capital.

However, he is concerned about the implementation of the new rules in the current economic situation. He said some companies currently operating in the market may not be able to meet their commitments due to longer payment terms given to buyers given the current difficult economic circumstances.

In addition, developers have had to deal with rising construction costs due to the effects of inflation on the prices of building materials. Al-Bustani said he believed the new regulations should not be applied to development projects that had obtained licenses before the new regulations were issued.

Gasser Fawzi, a board member of real estate investment firm Mina, hailed the government’s decisions as a way to regulate the relationship between developers, the land administration agency and consumers.

The real estate market has suffered from the inappropriate behavior of some new developers, especially those who lack experience and familiarity with the country’s markets, he said.

“Anyone who deals with the real estate market can call themselves a developer even if they only started their company three years ago,” commented Fawzy, whose company is about to launch a new project. on the north coast.

He said what worries investors most is not the substance of the new regulations, but how they will be implemented. If the implementation is too slow, it could harm serious investors.

The regulations were necessary, he said, but he was concerned that the upfront capital outlay required by the new regulations would weigh too heavily on developers under current conditions affecting local and international markets.

Small investors who do not have the necessary cash will be hit hardest, he said, especially given the high land costs, license fees and other expenses that must be paid before the start of the market. construction.

This especially applies to developers of small projects on 50 feddans of land or less as under the new regulations they will have to deposit at least 20% of the project value into the project account in order to get approval. of the ministry.

Under the new regulations, promoters will have to prove that they have the capacity to finance their projects. The amounts required are scaled according to the size of the project: 3% of the value for projects of more than 1,000 feddans, 5% for projects of 500 to 1,000 feddans, 10% for projects of 100 to 500 feddans , 15 percent for projects with five to 100 feddans, and 20 percent of the value of projects with less than 50 feddans.

These sums must be deposited in the bank accounts of the promoters opened for each project or project phase. They can take the form of direct cash deposits, auditor-approved receipts of income from already completed projects, credit facilities or a letter of guarantee from the bank.

Other regulations specify when developers can advertise sales in accordance with approved construction and delivery schedules and financial reporting requirements. Once developers have received approval of their plans for a particular phase and deposited the necessary funds into the project account, they will be given the green light to proceed with sales within the allowed time frame for construction and delivery.

They will also be required to submit audited financial reports to the ministry twice a year, within 45 days of the end of the first half of the fiscal year on December 31 and the end of the fiscal year on June 30.

In addition to the initial proof of ability to pay, developers must maintain a cash reserve equivalent to five percent of the value of the units for sale to cover repayments. Reimbursements are deducted from this reserve, which decreases in proportion to the ratio of units delivered to purchasers. The rest of the reserve is released once the phase is over.

Given the current economic conditions, Fawzi said additional facilities should be made available to developers. One would be to offer plots on installment plans of up to 10 years with access to loans facilitated for this purpose. He said he hoped the licensing process would also be expedited.

In the event that the promoters are late in delivering purchased units to consumers, in accordance with the terms of the contract and provided that the promoters have fulfilled their commitments to the ministry and that the customers have paid their installments on time, the promoters will have an additional 12 months to complete and deliver purchased units.

If they exceed this deadline, the remaining installments will be deferred until the delivery of the unit. In the event of a delay of 24 months, the buyer will have the right to choose between continuing in accordance with the preceding provisions or demanding a reimbursement which would be due within three months.

Fathallah Fawzi, chairman of the Egyptian Businessmen’s Association and chairman of the association’s Building and Construction Committee, said he feared the new regulations would restrict the market.

While this would force some developers who entered the market without sufficient cash and therefore relied on initial sales to fund their projects, it would also generally hamper smaller developers while larger companies would not feel the impacts as severely, a he declared.

On the other hand, the regulations were necessary to protect consumer rights, Fawzi said. Some promoters were routinely behind on their delivery commitments, and the new regulations were a response to complaints the government had received about companies being far behind or misrepresenting themselves as larger, more established companies. than they actually were.

It is unclear how and when the new regulations will come into effect. Fawzi said the executive mechanisms and whether or not they apply retroactively would become clear in the coming days.

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