Overview

• Decree no.: 2184 of 2022
• Summary: Prime Minister Decree implementing “requirements of Real Estate Development units’ sales for the protection of clients’ rights”
• Issuance date: 16 June 2022
• Entry into force: 17 June 2022

Highlights 

A significant Prime Minister Decree was issued on 16 June 2022 (the “Decree”), implementing new regulations and requirements (the “Regulations”) that apply to the real estate market by adding more strictness and governance to it. In addition, the Decree aims to introduce new creditworthiness conditions and reporting obligations that should be satisfied by the real estate developers to enhance the protection of the clients’ rights.

Concerned Entities

The stipulated Regulations apply to real estate developers whether developing touristic or residential projects, noting that current, ongoing and future projects/phases should be subject to the commented Regulations that apply immediately.

Important Stipulations 

Firstly, the Decree stipulates new obligations on the competent authority -that has jurisdiction over the plot of land subject to the real estate project- to include the Regulations in the bidding documents of real estate projects and the contracts to be concluded with the real estate developers.

Secondly, the Regulations set out newly introduced obligations on the real estate developers are as follows:

1. Financial-Related Obligations:
   1. Real estate developers are obligated to open a separate bank account for each project/phase for the deposit and withdraw all said project/phase-related returns and expenses. Such monies should be kept in the bank account until reaching a specific percentage ranging from 10% (ten) to 30% (thirty), subject to the surface area;
   2. If the real estate developer obtains a loan for a specific project/phase, a separate bank account should be opened to repay such loan. The reimbursement should take place from the revenues’ account or any other account subject to the Central Bank of Egypt regulations;
   3. Real estate developers should deposit an amount in the form of cash, bank cheques, facilities or a letter of guarantee equivalent to the anticipated constructional expenses of the phase subject to the development (the “Monetary Cap”). The Regulations set out a mechanism to calculate the Monetary Cap ranging from 3% (three) to 20% (twenty), subject to the surface area; and
   4. A reserve of 5% (five) should be reserved from the collections of each phase for potential refunds. Such reserved amount should be reduced correspondingly with the handover of the properties subject to said collections.
2. Development-Related Operations:
   1. The project should be divided into several phases. It is permissible to develop the whole project in one stage, and it is also permitted to create more than one phase at the same time;
   2. Real estate developers should comply with the timeline submitted thereby and approved by the competent authority; and
   3. Real estate developers should have the right to increase the number of properties offered for sale to a maximum of 50% (fifty), provided that all financial restrictions comply.
3. Marketing Requirements:
   1. Firstly, in addition to the obligations set out by the Consumer Protection Law and the Building Law, the Regulations introduced an additional duty, that being; the developer cannot promote the sale of real estate properties before obtaining the ministerial Decree approving the urban plan as well as the detailed urban plan for the phase subject to the development. It is worth highlighting that this obligation would significantly impact the development of real estate projects, especially the off-plan sale; and
   2. Secondly, launching a new phase should be subject to the deposit of the Monetary Cap. Also, the competent authority should ensure that the real estate developer has complied with the timeline for the past approved detailed urban plan.
4. Reporting Requirements:
   In this regard, a real estate developer must comply with the following reporting obligations:
   1. On a semi-annual basis, the real estate developer should submit an audited financial report through an auditor registered within the Financial Regulatory Authority or the Central Bank of Egypt. Subsequently, the auditor will present the report to the competent authority on the collected monies from consumers and the outgoings for the development; and
   2. Ongoing projects should provide the competent authority with a technical report on the actual completion status of the project.
5. Delayed Handover:
   1. Suppose the real estate developer fails to hand over the real estate properties at the agreed timeline to the consumer, subject to the fulfilment by the competent authority and consumer of their obligations. In that case, the following actions should take place:
      1. 12 (twelve) months grace period would be granted to the real estate developer;
      2. If the delay period exceeds the grace period, instalments should be postponed until the handover is complete, with a period that is equivalent to the period of the delay; and
      3. If the handover failure exceeds 24 (twenty-four) months, the client has the right to choose to either: (i) postpone the instalments by the period of delay until handover; (ii) refund instalments made during 3 (three) months as of their demand.
   2. Compliance period and concerned entities:
      1. The stipulation mentioned above shall apply to twenty-four all projects, including the ongoing projects, before issuing these regulations unless the concluded contracts between the real estate developer and the client grant the latter better commercial arrangements; and
      2. A compliance period of 12 (twelve) months as of the issuance date of the Decree is granted to the ongoing projects in case of failure to hand over within the agreed timeline.
6. Maintenance Deposit:
   The Regulations distinctly state that the maintenance deposits should not be taken from the project/phase-related financials and should be kept in a separate bank account for its purpose. Also, it has been highlighted that legal reviewers should inspect the disbursements from the maintenance deposits to ensure that the Building Law provisions are applied.

Compliance Period and Penalties

1. Ongoing Projects Status:
   1. Real estate developers are to abide by the financial-related and reporting obligations, as mentioned in the previous section;
   2. Regarding the bank account’s obligations, a real estate developer must open a bank account to be used only for phases which will launch in the future; and
   3. A compliance period of 6 (six) months should be granted to the ongoing projects in case of non-compliance with the agreed-upon project timeline.
2. In case of failure to abide by the Regulations, the real estate developer should be officially notified and granted a period of 6 (six) months to rectify the status. Failure to correct the situation within the said period, the competent authority will have the right to undertake the following:
   1. Suspend all related approvals regarding the launch of the next phase;
   2. Share the violations carried out by the real estate developer with the media; and
   3. Impose penalties stipulated in the contract between the real estate developer and the competent authority.