Unstable ground: Establishing and maintaining land ownership is proving challenging

In the wake of the revolution, one of the biggest issues facing the real estate business in Egypt is the question of access to, and ownership of, land. The legal background surrounding title to land can be unclear, partly due to the country’s history, which has seen Ottoman legislation overlaid with European legal codes, and a tradition in which unused land reverted to public ownership. Just under half the population (and over 60% in Cairo) live in informal settlements – that is, in buildings illegally erected on land to which the legal title is unclear. In Egypt, it is possible to obtain, and to trade, the legal right to live in and to make use of a house without necessarily owning the land upon which it sits, which can create a legal quandary. Mahmoud Bdeir, president of paint manufacturer Sipes, told OBG, “People have come up with a very sophisticated system that guarantees a transaction and exchange of title or deeds without going through the government or the real economy.”

RED TAPE: The issue is also exacerbated by the confusing overlap of regulatory agencies that oversee the award and transfer of public land to private developers. Under a 1979 law, the New Urban Communities Authority (NUCA), an agency reporting to the Ministry of Housing, Utilities, and Urban Communities, was given responsibility for releasing large tracts of land for new development. However, the Tendering Law, Law 89 of 1998, established that transactions for public land should take place by auction. In many cases, land was often directly allocated to developers outside of the auctions process, particularly for master-planned mixed-use developments, subject to public benefit conditions (such as constructing a certain amount of low-cost housing, for instance), especially in New Cairo.

LEGAL ACTION: After the 2011 revolution, concerns that public assets had been allocated illegally or sold at unfair prices led many land deals to be challenged in court. The outcome of the case relating to Talaat Moustafa Group’s purchase of 33m sq metres for its flagship $3bn Madinaty development remains pending, having been postponed until January 2014. Palm Hills Developments opted to return a large plot to the government, to rid itself of future liabilities and to shore up its then-deteriorating financial position. Mohamed El Mikawi, managing director at Al Futtaim Group Real Estate, told OBG, “In most cases, the government is looking for financial settlements in land disputes, asking the developer to pay additional fees for the purchase of lands rather than repossessing them.”

The broader political uncertainty in Egypt has stalled most planned land auctions, which may make it more difficult for developers to increase their land banks. Moreover, current guidelines do not detail exactly what constitutes public benefit, and this means that civil servants are likely to delay any land deals until the government is able to bring greater clarity to both the legal ownership of a given estate and to the precise situations and mechanism by which land should be released. Given the high rate of demand for real estate and the public sector’s limited ability to provide units, a lack of land for private developers is only likely to put further strain on the country’s housing infrastructure and push rents further upward.

SIGNS OF CHANGE: There are some signs that the government may be moving to help address the land issue. International property consultants Jones Lang LaSalle, in their Cairo Real Estate report for the first quarter of 2013, quoted NUCA as saying that residential and commercial plots scheduled for release in 2012 would now be put onto the market by the end of March 2013, although at the time of writing no large-scale land auctions had taken place.

Moreover, in September 2013, Egypt’s interim President Adly Mansour issued a decree that amended the guidelines under which government bodies can bypass the 1998 tendering law. In addition to facilitating easier direct purchases for goods and services, the decree also stated that the 1998 law only applies to those government entities that are not subject to special regulations or laws. This may allow many entities to avoid the tending process when allocating public properties.