Draft Real Estate Development Law Mandates Financial Coverage of Up to 20% Before Off-Plan Sales

The Egyptian government is preparing to finalize the draft law regulating the real estate market and establishing a real estate developers' association, aiming to set clear guidelines for the work of real estate development companies, enhance buyer protection, and reduce project default and delays in unit delivery, as reported by 'Aleqaria'.

The draft relies on the controls contained in Prime Minister Decision No. 2184 of 2022 regarding the sale of real estate development project units. These include obligating the developer to open a separate bank account for each project or phase, into which revenues are deposited and execution-related expenses are managed, along with regulating the opening of a debit account when obtaining a project loan.

The proposed rules require the developer to provide financial coverage in the project account before offering units for sale, at a rate of 20% for limited-area projects, 15% for small ones, 10% for medium ones, 5% for large ones, and 3% for maximum-scale projects, calculated from the phase's construction cost. The coverage may be provided in cash, checks from previous project revenues, credit facilities, or a bank letter of guarantee, and decreases gradually as implementation progresses until it is eliminated upon reaching specific completion rates.

The draft prohibits advertising the sale of units before the approval of the general master plan of the project and the detailed plan for the phase, and prevents advertising a new phase before verifying the developer's compliance with the previous phase's schedule. It also mandates keeping a 5% reserve of collections to meet refund requests, submitting a financial report every six months, and granting a grace period of up to 12 months for delivery delays, with the buyer retaining the right to a refund if the delay exceeds 24 months.

What do these terms mean?

Financial coverage: An amount or guarantee deposited by the developer into the project account to ensure their ability to continue execution before selling the units.

Off-plan sales: The sale of units before their construction is completed according to an approved plan, provided they are delivered at a specified date.

Competent authority: The governmental entity responsible for supervising the project, granting approvals, and monitoring the developer's compliance.

Bank letter of guarantee: An undertaking issued by a bank to pay a specific amount to the beneficiary if the developer fails to fulfill their obligations.