Egypt sets new rules for real estate development, sales

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Prime Minister Mostafa Madbouly has issued a decree obligating competent authorities to include the new rules for sales of real estate units for the protection of buyers’ rights among tender documents and appendixes of contracts signed with developers, according to an official statement on June 20th.

The new rules include dividing projects into a set of phases, the statement said.

Developers may consider the project as a single-phase containing 100% of its total area. Developers also may, upon their request, sell just a portion of a phase.

The decree also obligates developers to open bank accounts for each project or phase to deposit and withdraw all funds related to the project or the phase, whether through cheques or in cash, except for expenditures on services and basic utilities that are not included in the phase, which is applicable to projects with maximum areas.

As for unit sale announcements, the decree stipulates that announcements may not be made prior to obtaining a ministerial decision approving the master plan.

A new phase may not be announced unless developers adhered to the approved schedule of the previously-announced phase.

The decree mandates that auditors of developers shall be registered in the auditors' record at the Central Bank of Egypt (CBE) or the Financial Regulatory Authority (FRA).

Developers may increase the number of units offered for sale in approved phases to a maximum of 50% of offered units.

Additionally, developers shall deposit a minimum amount at the project’s bank account until the construction works of a phase commence.

Following the initiation of construction works, developers may reduce the minimum financial coverage at the bank account gradually as they complete the project or the phase until the completion of 30% of the project or the offered phase based on the area (25% for small area, 20% for medium area, 15% for big area, and 10% for maximum area).

In case the developers fail to deliver units on the date agreed upon in the contract, they will be given a 12-month grace period.

If the developer exceeded the grace period, installments shall be postponed by the period of delay until delivery.

The decree also stipulates that the client shall redeem paid amounts in three months or postpone installments in case the developer fail to deliver for 24 months.

Subject to Madbouly’s decree, developers shall open bank accounts for the next phases of projects whose marketing campaigns shall be launched as of the effective date of the decree.

Developers shall also introduce financial statements approved by auditors of the CBE or FRA. These statements shall include returns of previous sales for undelivered units with technical reports of percentages of completion in reality.

If the developers violate the approved schedule or contracted term of execution, they shall be granted a six-month grace period to adhere to the schedule.

Should the developer fail to adhere to the schedule within the six-month grace period, all approvals of sales of the next phases shall be suspended, and contracted legal penalties shall apply.