The current administration has announced a number of initiatives to support the development of the real estate industry, as well as improve the provision of housing for the general populace.
One of the biggest issues of the last half-decade has been land. Many of the leading developers have very substantial land holdings. According to the report “Industry Insight on the Real Estate Sector” by the American Chamber of Commerce (Amcham) in Egypt, as of June 2014, Talaat Moustafa Group had the largest land bank with 47.3m sq metres. This was followed by Heliopolis Housing with 29.4m sq metres, Madinet Nasr Housing and Development with 9.9m sq metres, Palm Hills Development with 8.9m sq metres, and Sixth of October Development and Investment Company (SODIC) with 5.5m sq metres.
Following the 2011 revolution, land became a contentious issue, not just for developers but for property holders across the board, following allegations of below-market pricing schemes conducted under the administration of President Hosni Mubarak. According to reports in the local press, by the end of 2014 there were at least 155 cases being reviewed by the government’s dispute settlement committee across a number of sectors. The dispute resolution committee has proposed solutions for 20 of these cases, at least nine of which lay within the real estate segment.
The situation appears to be resolving itself with the help of ongoing extensive dispute resolution negotiations, which in some instances have resulted in the return of land plots or payments on re-assessed land. For example, the press reported that in May 2011 Palm Hills returned a 9m-sq-metre plot it had purchased under the previous administration on Egypt’s north coast to the government. As in other cases, the courts were involved to sort through the outstanding issues.
Foreign firms have also been drawn into protracted negotiations for outstanding previous sales transactions. In a settlement with the New Urban Communities Authority, an agency under Egypt’s Ministry of Housing, the Emirati firm Damac was forced to waive a 17.78% stake in the luxury development Hyde Park and, in another example, the backers of Cairo Festival City, Al Futtaim, negotiated a revised payment agreement with the government in 2014.
Such disputes are particularly complex in Egypt, given the lack of transparency in land pricing, which makes assessment uniquely challenging. With opacity in the land market, many would argue that it is difficult to ascertain a fair market value for land.
The government has recognised this, and is itself in a delicate position, caught between the conflicting desires to ensure a fair price for public lands and the need to attract further investment to the industry. As such, it has tried to expedite the process of settling land disputes.
In the first quarter of 2014, at the annual Cityscape real estate forum, the then-housing minister, Ibrahim Mehleb, announced to the press that, ‘“the state of confusion regarding real estate investments has ended despite all the obstacles and concerns surrounding the current policies, which look to strike a balance between investors’ rights and those of the state”.
With several cases still outstanding in the dispute settlement committee this may be an optimistic take on the current situation. Yet the government is certainly looking to put this period of uncertainty behind it and is also looking at introducing a number of measures to ensure that the potential for future opacity and misuse of public lands is minimised. At the same forum in 2014, for example, Mehleb announced that public land would now only be available through public auctions rather than direct contracts.
However, one of the most important measures to improve the environment for land investment is the government drive for co-development of land. In the first quarter of 2015 the government announced plans to offer state land to private developers on a revenue-sharing basis. These plans are being rolled out.
The new model will allow the government to generate revenue from public lands in a transparent manner, while easing the difficulties with land acquisition and the constraints on supply for private developers. As well as helping to moderate land price inflation, the new system will allow the government to offer land to private developers in exchange for a certain quota of affordable units in any subsequent development.
The government has already effectively used the new structure to settle ongoing settlement disputes with developers. In March 2015, for example, the real estate firm Talaat Moustafa Group signed a final agreement with the New Urban Communities Authority (NUCA) offering 3.2m sq metres of finished units in its flagship Madinaty project in Cairo to conclude a contract made with NUCA in 2010. This was accompanied by a $380m payment to be fulfilled over 10 years as part of the settlement for deals with the previous administration.
The government strategy has been well received by private developers. Dasha Badrawi, the then-managing director of SODIC, told press in March 2015, ‘“This is very positive for the industry. Essentially, [the government] is becoming partners with a share of the top line.”’ As of August 2015 the government had signed LE35.8bn ($4.9bn) worth of revenue-sharing deals with a combined area of 6.4m sq metres, according to HC Securities and Investment. This number is only likely to increase in the future, given the moderate land banks of leading developers and the desire to maximise units in the suburbs of Cairo.
The other major government intervention in the sector in the last 18 months was an amendment to the building tax law. First introduced in 2008, the law was reinforced by President Abdel Fattah El Sisi in August 2014. It is hoped that the new regulation will improve collection and revenues, as well as encourage construction completion and the sale or rental of units.
Under the new law, all buildings, both completed and under construction, will be liable for taxation, meaning that the swift development and sale or rental of property is preferable. Given the issue of vacant units in the country at a time when there is high demand for housing, this legislation could be a useful tool for improving the supply situation in the mid- to low-income segment of the market.
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