New Rules for Developing Off-plan Properties in Egypt
The Prime Minister has recently issued the Decree No. 2184 of 2022 (“Decree”) implementing new rules to govern real estate developers and the sale of off-plan properties. The Decree creates greater protections for buyers of off-plan properties.
The Decree defined a real estate developer (“Developer”) as any legal entity that is authorized to develop real estate properties either for residential or touristic use. The Decree does not apply construction companies. The Decree classified real estate projects into five categories according to their size:
- Limited Size Projects: Projects whose space is less than 50 acres.
- Small Size Projects: Projects whose space range from 50 to less than 100 acres.
- Medium Size Projects: Projects whose space range from 100 to less than 500 acres.
- Large Size Projects: Projects whose space range from 500 to less than 1000 acres.
- Mega Space Projects: Projects whose space goes beyond 1000 acres.
Separate Bank Accounts
The Decree requires Developers to open several bank accounts to manage the revenue, finance and cost related to the project. These accounts are as following:
The Developer is required to open an independent bank account for each project. This bank account to be used as an escrow account in which all revenues and expenses related to the project are deposited and disbursed therefrom.
A debit account shall be created in case the Developer will obtain debt finance for the project. The finance amount shall be deposited in this account, while repayment will be from the Project Account or any other account for the Developer.
Maintenance and Operation Account
The maintenance and operation fees collected by the Developer will be deposited in a separate account for that purpose. The Developer will spend from the interests accrued on this account (rather than from the principal amount) to carry out the maintenance and operation work.
It is worth mentioning that the Decree mandated the Developers to manage the project after completion and to take over the role of the Occupants Union stipulated under the Construction Law no. 119 of 2008.
Sales and Financial Guarantee
Developers are not allowed to announce the sale of the units in any project unless a ministerial decree is issued to approve the general plan of the project. New phases of the project may not be announced unless the Developer proves that it has complied with the time schedule for the previous phase.
The Decree requires Developers to deposit in the Project Account a financial guarantee to ensure the start of the construction work of the project (“Guarantee”). The amount of the Guarantee is a percentage of the project’s value and will differ according to the size of the project as following:
|Project Size||Percentage of the Project Value|
Only after the deposit of the Guarantee, the Developer will be allowed to sell the project or its units.
The Developer is allowed to reduce the value of the Guarantee according to the completion rate of the project, and it will be allowed to refund it upon completion of the project according to the following percentages:
|Space||Limited Space||Small Space||Medium Space||Large Space||Mega Space|
|Completion rate required to refund the Guarantee||30%||25%||20%||15%||10%|
The Developer is required to prepare financial statement about the amounts collected from the buyers and the costs and expenditure of the project. This financial statement will be prepared biannually and will be approved by a certified auditor.
The Developer is required to deposit a letter of guarantee in the value of 5% of the amounts collected from the buyers to cover any returns by buyers.
The Developer is required to commit to the project schedule and the date of handover agreed with the buyer.
In case of handover delay, the following will apply:
- The Developer will be granted 12 months grace period.
- In case of delay for another 12 months beyond the grace period, the buyer will be entitled to stop paying the price installment until handover, and the payment installments will be rescheduled accordingly.
- In case of delay more than 24 months, the buyer will be entitled to terminate the purchase contract and refund the price.
The new rules of late handover apply to all projects, including projects that are being implemented before the issuance of the Decree.
Non-compliance and Penalties
In case the Developer violates any of its obligations under the Decree, it will be given a six months grace period to ratify the violation. In case of failure to rectify the violation, the competent authority will be entitled to suspend the licenses and permits given for the sale of the project in addition to announcing the violation through public media.