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PoliticsPublic Policy

Egypt Real Estate Registration Crisis – Policies & Scenarios

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Last August, Egypt’s House of Representatives passed a draft law submitted by the government, later Law No. 186 of 2020, amending some provisions of Law No.114 of 1946 regarding immovable registry regulation, by adding a new article, No. (35 bis), to the law stipulating that:

“If the deed of the application is a final judgment that proves the creation, transfer, determination, change, or extinction of the original real estate right in rem, the office secretary should give the application a temporary number, in a specific register prepared for each such number, after payment of the prescribed fee. The temporary number shall be converted to a final number, having the same implications of the declared or recorded document, when no to the judgment appeal has been filed or where the appeal has been rejected. An appeal on the issuance of the temporary number shall be filed before the summary judge, within one month from the date of its publication in one of the widespread daily newspapers at the expense of the concerned person. The summary judge shall issue a reasoned judgment by accepting the appeal and canceling the issuance of the number or by rejecting the appeal within seven days from the date of filing accompanied by the supporting documents. The judgment issued in this regard shall be final. Electricity, water, and gas companies and other companies, agencies, ministries, and government departments shall not transfer facilities and services or take any action with the concerned person in respect of the property except after submitting the documents that hold the announcement or registration number.”

This amendment was published in the Official Gazette on September 5, 2020, to come into effect after six months, that is, on March 6, 2021.

On September 9, 2020, Prime Minister Mostafa Madbouly said, “The government is currently working on setting up a digital system to create a certificate and a national number for each apartment and property, through which apartments will only be dealt with (i.e., installations of electricity, water and gas meters).” On December 7, 2020, the Minister of Justice announced in an interview with ON TV presenter Lamis Hadidi that 95% of Egyptian real estate is unregistered due to the difficult procedures. On 22 February, the minister said government agencies would not deal with unregistered real estate, which means that installation of various facilities (electricity, water, gas) would not be allowed for the unregistered units. Meanwhile, rumors were circulated about the government’s intention to expropriate the unregistered units, which was denied by the government through its information center and through statements of international channels that the controversy reached. Since last August, there has been controversy on social networking sites and among Egyptians on the street about real estate registration’s procedures and fees, in light of the pandemic and the grave damage it has caused to their economic and social conditions. There were also fears that the government would deal with this matter in the same way that it had dealt with the enforcement of the Building Violations Law, which resulted in a major crisis and aroused protests and street confrontations with law enforcement authorities.

Undoubtedly, registering in-kind rights in light of this information represents a public problem that needs a public policy which should not be set by the minister or the parliament in the absence of bodies representing millions of concerned citizens. Also, objectively speaking, this problem cannot be postponed and passed on to coming governments indefinitely. There must be a public policy to address the repercussions of the problem, amid millions of real estate disputes accumulated in Egyptian courts. The absence of a comprehensive register of real estate in Egypt would result in loss of the rights of millions of Egyptians, in addition to violations related to attempts to extract these rights outside the scope of the law.

The problem that this paper addresses is related to the controversy that occurred on the eve of the approaching entry into force of the new amendment of Law No. 114 of 1946 on March 6, the deadline set for citizens to regularize their status: the unfair fees imposed by the law amendment, the context of the amendment, and the strategy of the current government in enforcement of such laws. The paper also explores alternatives to the government strategy related to the amendment of Law No. 114 of 1946 on the real estate registration.

Contexts of new amendments:

The government argues that the amendments to Law 114 of 1946 is aimed at protecting the Egyptian real estate wealth, but the amendment includes blocking the installation of various facilities to the unregistered buildings as of March 6, 2021, the date when the amendment would enter into effect. The amendment also means that citizens have a one-year grace period to register and object to the real estate registry judgments, which lawyers and experts say it is very short. This issue represents a real challenge to successive Egyptian governments with respect to enactment of laws and enforcing them on time. It also represents a greater challenge to the current government, considering its previous experience related to enforcement of the Building Violations Law, where the government resorted to major setbacks, and yet it has not achieved the desired outcome.

In fact, the reason behind raising this problem at this particular time is that the Egyptian government must repay about $21.4 billion to creditors in 2021 that it had borrowed before, as the period from 2014 up to now has witnessed an unprecedented accumulation of foreign debt and its interest. Amid the likely lack of a major change in the international sources of funding for Egyptian economy, especially the tourism sector, and in case the government fails to persuade creditors to continue lending it, it will face a big problem in meeting its foreign obligations on time. Also, international institutions have always demanded application of such procedures to facilitate business and investment climate, especially those related to procedures of the registration of the real estate wealth and the requirements of transparency and provision of a vital database in this regard.

Analysis of the crisis related to enforcement of the Building Violations Law shows that the Egyptian government, along with its calcified administrative apparatus that it relied on in this regard, has not had a database that could allow it to identify those targeted by the violation fines and thus collect them. Also, the formal and informal real estate sector lobbies have always found mechanisms to circumvent violation fines, whether through resorting to informal mechanisms and procedures or by registering some real estate in the names of dead persons in some cases, in order to evade violation fines.

Therefore, the Egyptian reality is very complex, being characterized by ability to circumvent laws and legislation. Millions of new owners of units have also faced a crisis related to who would bear the reconciliation fees. Although the government resorted to some (cosmetic) amendments in procedures, it has not been able to collect the targeted reconciliation fines, as it faced the crisis of non-registration of most of these properties.

The Central Agency for Public Mobilization and Statistics (CAPMAS) has declared that 32.5% of Egyptians lived below the poverty line in 2018, up from 27.8% in 2015 and 16.7% in 2000; that 6.2% of Egyptians live in extreme poverty, taking into consideration that it set the poverty line at around $1.45 per day and the extreme poverty line at less than a dollar a day. It is noteworthy that that CAPMAS report was issued in 2019, that is before the effects of the coronavirus crisis and its additional burdens, where the CAPMAS report of May 2020 indicated that the incomes of the majority of Egyptians (73.5%) have declined significantly due to the COVID-19 pandemic; that 61.1% of them have had to work fewer days for lower wages; that 70% of Egyptian household have reduced their consumption of meat, poultry and fish to cope with the lack of income resulting from the crisis; and that about a third of Egyptian household do not have enough income to cover their essential needs.

Amid these economic pressures experienced by most Egyptians, it is illogical for the government to impose additional fees on them in light of a pandemic that affected the incomes of almost all Egyptians, according to official reports. Consequently, several logical questions arise about the abolition of the real estate disposal tax imposed on real estate transactions upon first registration, or at least the government would collect it directly from sellers over a reasonable period of time, provided that the applicant for registration would be exempted from it. There are also questions about the rationale behind the Bar Association-related fees imposed on applicants for registration, where the Bar Association does not provide them with services in return. Nevertheless, users of social media platforms, including ordinary citizens and lawyers, suggest solutions to cope with these amendments, including proposals for dividing moderate fees on installments added on electricity, water and gas bills for a certain period; adopting forms for electronically submitting registration in light of the pandemic; referring court archives regarding disputes over in-kind rights related to real estate ownership directly to the Real Estate Registration and Notarization Authority, which at least reduces burdens on citizens and real estate registry employees.

The impact of the epidemiological situation in dealing with this law should not be limited to the economic impact only, as the new amendment and the registration procedures resulting from it require millions of citizens to attend the headquarters of several government agencies within three months according to the current situation or six months according to the amendments submitted by some parliament representatives, starting from March 6, which leads to accumulation of millions of citizens in the real estate and notarization offices, real estate disposal tax collection sites, courts, municipality offices and attorney offices. We are talking about owners of approximately 43 million real estate units, according to official data. This increases the likelihood of a major health catastrophe, as this same period coincides with the peak of the second wave of the coronavirus pandemic, as latest official statistical reports state that the spread of COVID-19 infections among Egyptians in the second wave is faster and fiercer than the infection rate in the first wave. Consequently, the insistence on the immediate application of these procedures within a short period of time lacks any scientific logic and the pandemic protection measures, and raises questions about the possibility and capabilities of the Egyptian health system to absorb the disaster that could result from such insistence.

In fact, the Egyptian real estate market is suffering from a real crisis; and all market participants know that real estate prices are so much exaggerated, but they do not find a good alternative for it, with respect to investment. Although the government and businessmen close to it adopt sayings such as “the real estate is the best investment” and “the real estate sector is the lever of Egyptian economy”, they reflect a defect in financial and economic policies, not to mention that the majority of ordinary citizens do not find a way to enter the real estate market with their current financial and living conditions and due to speculation and wide brokerage operations in real estate that have become a key means to get rich in recent years. Meanwhile, small buyers face a resale crisis, which will inevitably escalate due to the exaggerated fees for registering property at the real estate registration and notarization authority, according to the current course, as the market may stagnate, albeit temporary.

The government’s new approach aims at a major capitalization process, the primary goal of which is to collect the largest possible amount of taxes and fees. A press investigation by Al-Ahram, a government-owned daily newspaper, indicates that the real estate wealth is initially estimated at a trillion dollars, equivalent to 16 trillion Egyptian pounds, including 10 million properties other than government real estate, and that these procedures come within the “national project to digitize real estate and establish a national number and certificate for each property”. This project, which is scheduled to be completed within 3 years, according to experts and specialists, aims to inventory and manage real estate wealth to achieve rational management and facilitate the provision of services and end disputes over ownership, with cooperation between the ministries of communications, justice, planning and local development. The project has been implemented experimentally in the Port Said Governorate, and actual implementation is underway in the Alexandria Governorate, with mandate from the Prime Minister. This coincides with the preparation of a draft law to popularize the coding process across the country after completion of the drafting and enactment of a law to regulate this program that Sisi follows up on it in person.

It is ironic that, in parallel with the launch of this national project, the Real Estate Registration and Notarization Authority suffers from a severe deficit in the number of employees. The real estate registration sector suffers from a severe deficit in employment of all kinds, as the number of its employees reached 7,885 employees of all categories during 2016, and as a result of some of them reaching the legal retirement age, the number of those employees decreased to 6,201 at the end of 2019 – who are responsible for the registration processes for millions of unregistered units, which is a real crisis, especially after the approval of the Civil Service Law and the suspension of appointments to government agencies. This required the Minister of Justice to ask the Prime Minister in December 2019 to transfer 1,102 employees from their original employers to work for the Real Estate Registration and Notarization Authority

Legislation enforcement strategy

From time to time, the Egyptian government floats trial balloons on issues requiring public policies but have been postponed for decades, including building violations laws, old lease laws, and most recently, the real estate registration and notarization law. In fact, these laws directly target all citizens, where they affect their right to housing and ownership patterns, that have always been linked to structural changes in economy and social relations. The government’s recent experience in the way of enforcement of the Building Violations Law indicates that the Egyptian government adopts a shock approach in dealing with some issues, but this approach has not succeeded and ended with major setbacks by the government and failure to achieve neither the objective goals of such public policy nor the interim objectives of the government (of achieving predetermined revenues). Also, the Egyptian government has always adopted undertaking general brief amendments to laws so as to allow it to detail their executive regulations that do not take much public attention. While the government has promoted that registration fees will not exceed EGP 2,000 and that the goal of the real estate registration law is to shorten bureaucratic procedures, yet many lawyers, legal experts and press reports have made it clear that according to the new law regulations, the citizen must pay fees to 5 government agencies to reach the registration stage, including: real estate registration and notarization fees that vary according to the area and range between EGP 500-2000; the bar association fee, 1% of the property value; the disposal tax fee, 2.5 % of the property value; the cadastral agency fee ranging between EGP 290-570, the blueprints fee between EGP 1000-2000, a validity and effectiveness lawsuit fee of approximately EGP 500, and judicial fees of 4.5% (EGP 45 per EGP 1,000 from the Unit’s total price), in addition to attorney fees.

After the great uproar caused by the amendment of the Real Estate Registration an Notarization Law, adding the controversial Article 35 bis, some members of the Egyptian House of Representatives submitted a request to amend the article to diminish some aspects that aroused popular anger, especially on social networking sites, directing bitter criticism of the law and its executive regulations as a pure taxation law. . However, the overall proposed amendments do not meet the key objections circulating on social media, particularly the high fees and the multiplicity of agencies and procedures that must be passed through in order to complete the registration process. The proposed amendment focused on details like extension of the registration deadlines and objections from one month to three months, which means that we are facing a project to amend the amended law two weeks before coming into effect. This indicates the country’s legal confusion despite the fact that both the members of the parliament that had passed the law and the current parliament have been chosen very carefully by the security services that manage the entire political process. Also, lawyers have not allowed access to the text of these controversial executive regulations up to now.

The way in which these laws are tried and tested on people has proven – at least in the case of the Building Violations Act – leads to unexpected protests, the accumulation of waves of anger and some spontaneous expressions about people’s muffled anger, the last thing that this government may need or love, as they would require either immediate suppression or immediate retreat, each of which results in strengthening the citizens’ feeling that they can win concessions from the government by pressuring it. In fact, the Egyptian economic reform program is fraught with uncertainty and risks, not just as the slogan circulated by some international financial institutions that such “bold reforms would shorten the way”.

Alternatives and scenarios:

While recognizing the significance of these laws for the stability of property relations, and the Egyptian government’s establishment of a real estate registry for all real estate assets, agricultural lands, state property, endowments, and open land, however, the Egyptian government should realize that such procedures (registration and notarization) are carried out in many countries completely free of charge, as it is the case in Saudi Arabia; or in return for a low fee, given the competent authorities’ provision of this service electronically, as it is the case in Qatar as well as the United Arab Emirates. Given that the incomes in these countries are much more than their counterparts in Egypt, being among the highest incomes in the world, which means that the fees in the Egyptian case are extremely high in addition to the fact that the timing is not at all appropriate for imposition of such law. Consequently, the government must develop a plan that should take into account citizens’ income and the expectations of the economy’s recovery from the COVID-19 pandemic consequences, by setting timetables for various income categories.

Also, the procedures should be completely clear and not complicated. The government that deals with the investor with the logic of a one-stop shopping should at least deal with citizens according to the same logic, given that these procedures would inject huge funds into the state’s treasury times exceeding the foreign direct investment pumped by investors. In the context of the pandemic, everything that can be transferred from normal procedures to the electronic system should immediately be transferred to make things easier for citizens and protect them and the whole state from the consequences of the likely broad outbreak of the pandemic, amid citizens’ crowding in various government agencies, particularly the Real Estate Registration and Notarization Authority. Taking into account that citizens must come to real estate registration and notarization offices to fulfill some procedures that cannot be carried out electronically, the time limit stipulated by the law should be extended to ensure provision of these pre-appointment services in uncrowded offices.

The government’s project to digitize the real estate wealth, primarily requires starting with the government documents, court rulings, and expert reports in millions of lawsuits filed before courts in relation to real estate and land, by archiving and coding them electronically, to enable the government to develop and enact more accurate laws and make the planned registration process more accurate to ensure preservation of rights.

The Egyptian government should realize that the policy of passing urgent legal amendments without undertaking extensive discussion with experts, concerned officials, and citizens; taking into account people’s economic and social conditions, such policy will not lead to achievement of the desired outcome or the desired political stability, but rather to setbacks that may empty these laws of their content and do not lead to long-term stability.

In this context, there are three likely scenarios as follows:

The first scenario: that the government may move forward in implementing its current law without substantive amendments, where it only takes cosmetic amendment steps so that it could appear to be responsive to citizens’ objections, without reducing the stipulated taxes and fees. This scenario is indicated by talk about limited amendments introduced by some pro-government parliamentarians and talk show programs. But, if implemented, this scenario will not achieve the desired outcome and will face major obstacles in implementation. It will further confuse the real estate market, increase the accumulation of lawsuits in the courts, and encourage the land mafia to circumvent the legislation.

The second scenario: that the government would pay attention to the reports issued by its own agencies about poverty, citizens’ low income, and the current epidemiological situation; and try to reconcile them with the desired outcomes. Consequently, it may realize the need to reduce costs and procedures related to the real estate registration process, try to follow electronic methods as much as possible in transactions, extend the application process for more than a year, and set a timetable according to income categories and governorates, perhaps similar to the comprehensive health insurance law. This scenario partially boosts ongoing discussions about some essential provisions of the (real estate registration and notarization authority) law, including the debate about the abolition of the bar association certification fee of 1%, with the possibility of payment of the real estate disposal tax to be paid over a year and a half and delaying enforcement of this law until the end of 2021.

The third scenario: which is more rational, that the government would literally adhere to what it announced at the beginning of promotion of the project, namely, that the registration fees would not exceed 2,000 Egyptian pounds per one unit, provided that other fees that seem illogical such as the 1% fee allocated to the Bar Association, would be cancelled; reducing the real estate registration fees to its minimum rates; compiling judgments and publishing them in an electronic issue of the Official Gazette or any electronic portal of a widely circulated newspaper; that the government would collect the real estate disposal tax of 2.5% by itself, away from the applicants for registration in order not to cause a severe congestion crisis in courts, taking into account the economic conditions of applicants that are required to pay those fees and taxes by scheduling them over a reasonable time frame, which can initially achieve a good outcome of fee collection, as well as moving the documentary cycle without major pressures or new burdens on citizens and achieving law enforcement, taking into account the conditions of those concerned.

Conclusion

From a purely economic point of view, if this is a capitalization process worth trillions of Egyptian pounds, where its main purpose is to convert a large part of the informal economy to the formal pattern and inventory its actual value and control its transactions, then there is no sense in insisting on imposing these high fees on citizens in this way for achievement of only taxation purposes – especially that the government can analyze this big data on the market, resell it and employ it so that it can get a higher added value than that targeted by the registration fees.

Also, if the fees exceed reasonable and logical limits, then the registration of the Egyptian real estate wealth will remain at the year 1946, and no real development will take place in the registration system. Moreover, the state’s taxation logic may lead to great popular congestion unless the government reverses these procedures or at least reduces them significantly, with payment of fees in installments, doubling the number of real estate employees, and allowing a reasonable extension for application periods, perhaps more than those of the Building Violations Law.

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