Real Estate Registration Law Amendments – Development Brief

In early September 2020, amendments to the Real Estate Registration Law (qanun al-shahr al-‘aqari) were passed with a six months grace period.[1] The amendments simplified the process of registration for owners of contested property that have acquired a final court verdict. More ominously, they also stipulated that, for property transactions, no utility provider may transfer utilities to the new property owners’ names nor allow for utilities to be extended to newly built properties that had just been sold unless proof of real estate registration is shown. This amendment basically acted as a strong incentive to force the registration of over 35 million unregistered homes in Egypt.[2]

These amendments passed unnoticed until officials started a campaign in February 2021 to remind owners to register come March 4, the date the grace period was supposed to end. What followed was a popular backlash to the law, citing high registration costs especially during hard economic times induced by the coronavirus pandemic, which have seen two thirds of the workforce either have had their income reduced or lost their jobs.[3]

Importance of Real Estate Registration

Egypt’s Civil Code, which regulates contractual agreements, states in article 934 that real estate ownership can only be transferred according to the Real Estate Registration Law,[4] meaning by registered contracts. However, registration is a complicated and costly process, which has led most to seek alternatives such as customary/preliminary contracts, signature validation rulings (sihat tawqi’a), contract validation rulings (siha wa nafaz), and power of attorney. Most government agencies have adapted to these documents such as utilities providers and the Real Estate Taxation Authority, though if it comes to a property contestation case, the courts see these as semi-formal proofs of ownership that are weighed according to the law and precedents as follows:[5]

1.Real estate registration

2.Adverse possession (wad’ al-yad)

3.Possesion in good faith

4.Regsitered deed or contract validation

5.Registrtation at the Real Estate Taxation Authority, or payment of the tax

Absent form these are contracts with signature validation, because such rulings only confirm the identity of the seller, and do not the validity of the contract’s contents. Power of attorney sales are also not included because they do not transfer ownership, rather give rights over property.

Many find these documents sufficient in proving ownership as long as it is not contested, however those that find themselves in the midst of a legal case can only fight is as strongly as the legal power of their documents. Anecdotal evidence suggest that fraud and property contestation are an ongoing phenomenon in Egypt, so much that the head of the Real Estate Registration Authority, Dr. Gamal Yakout calls them the “fraud mafia”.[6] In one of the more notorious cases of such fraud, 177 units in a new residential building in Alexandria, were sold to 350 different buyers, creating a maelstrom of legal cases and violent confrontations between the buyers.[7]

Reasons for Refusal of the Law

The stipulation to register real estate was met with fierce public refusal which quickly reached parliament.[8] For one, the process of registration is very complicated taking anything from 25 steps if the registration was amicable (involved the seller), almost doubling to 46 steps if a contract validation ruling was needed.[9] On average, these steps may take between six months to two years to complete.

In addition to these bureaucratic procedures, costs would range from 1.1% of a unit’s cots, up to 11% depending again on whether it was a simple transfer, or a court case was needed (Table 1), which will be the majority of cases. These costs include fees at the Real Estate Register of between LE 500 and LE 2000, Lawyers’ Syndicate fees for stamping the contract equal to 0.5% of its value, the collection of the 2.5% real estate transfer tax, which while the seller should pay it, has been collected upon registration form the buyer.[10] In the case of a contract validation case, court fees range between 2.85% to 5.7% depending on whether the procedure was reconciled at the start, or if it goes through a full trial, while lawyers’ fees and other incidental fees paid to various authorities for a host of documents differ from case to case.

Table 1: Estimated real estate registration costs for a 100m2 property costing LE 300,000 (Lawyers’ Syndictae)[11]

Impact

Days before its implementation, amid rising resistance to the law, both parliament and the government proposed drafts to delay its enforcement. Finally, in a meeting with the Minister of Justice on March 1, President Abdel Fattah al-Sisi decided on a two-year deferral to “allow a community discussion” around the law.[12]  During the transition period, fees for registration would be “discounted” and more clearly shown, and the capital gains tax stipulation would be lifted. On the following day, parliament approved a bill merging the government and parliamentary drafts to suspend the new real estate registration amendments until June 2023,[13] as well as amend the Income Tax Law removing the stipulation to allow registration only after the real estate transfer tax was collected. Law 5/2021 was thus passed on March 6 sealing the deferral.[14] These 11^th hour moves corrected the erroneous path that the law was taking to uphold property rights and secure tenure by forcing people to register, while this hiatus gives time to implement reform where registration is simplified and other associated costs are reduced.