Egypt is set to introduce a new law to regulate its real estate development market, aiming to strengthen oversight of developers' use of customer funds and ensure payments collected from buyers are channelled towards intended projects. The draft law establishes the Egyptian Federation of Real Estate Developers and introduces new rules for company classification, unit sales, buyer protection, and handling of stalled projects. This move is part of a broader government effort to mitigate risks facing property buyers and address stalled projects.
The proposed law requires developers to open a separate bank account for each project or development phase, with all payments collected from buyers under sales contracts deposited into the designated account. The funds would be restricted to the relevant project and could not be used to finance other developments or purposes outside the account's scope. Withdrawals from each project account would be linked to the construction schedule and actual completion rates, based on a report prepared by the project's appointed consultant and approved by the Egyptian Federation of Real Estate Developers.
Prior approval from the federation would be required before developers market units for sale, market projects, or participate in real estate exhibitions. Developers would also need to deposit stipulated amounts into each project's designated account, considering the project's size and development costs. The proposed measures aim to strengthen oversight of developers' use of customer funds and ensure that payments collected from buyers are channelled towards intended projects.
The draft law proposes establishing two independent funds to protect customers contracting with real estate developers. The first fund would cover customers contracting with registered real estate developers, while the second would provide protection for customers dealing with companies classified as "deemed real estate developers." The Prime Minister would determine the management structure of each fund, members' contribution rates, the risks covered, and the rules governing compensation payments.
Under the draft, 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 areas of at least five feddans, as well as commercial, administrative, service, and tourism projects covering at least one feddan. Existing developers would be required to regularise their status within one year of the effective date of the law's executive regulations.
The proposed federation would have a broad range of 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 establish a more structured regulatory framework for the real estate development industry, particularly as the sector has expanded significantly and concerns have grown over developers' ability to complete projects and deliver units on schedule.
The draft law also sets out procedures for dealing with developers that fail to implement their projects, including formal notification and opportunities to resume construction. If the developer fails 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. The Central Bank of Egypt is also monitoring bank financing extended to the real estate sector, including the relationship between financing and actual project implementation rates.
Key points
- The proposed law aims to strengthen oversight of developers' use of customer funds and ensure payments collected from buyers are channelled towards intended projects.
- The draft law proposes establishing two independent funds to protect customers contracting with real estate developers.
- The proposed federation would have a broad range of responsibilities, including classifying companies and settling disputes.
