Could the new building violation reconciliation law be a shot in the arm for real estate developers? Members of Parliament are currently discussing a new building violation reconciliation law which aims to permit owners of some illegal buildings to pay reconciliation fees and legalize their statuses. Some elements of the Senate-approved draft law — like exclusions for some 920k buildings and reduced fees — have drawn significant attention in the past week. It’s not yet clear what the final bill will look like but if reconciliation agreements are expedited and more widely accepted, the wider real estate market could soon be seeing some positive outcomes, our sources tell us.

Clamping down on building violations: The bill, which was approved by the House Housing Committee yesterday, would make the government’s primary directive in this space to eliminate wildcat building construction, extract more tax revenue and fees from old violations, and prevent new encroachments on architectural and archaeologically significant sites.

Reconciliation efforts are not new: The government has since 2019 introduced legislation that provides violators the chance to pay a fine and allow them to legalize the buildings’ status instead of evicting residents and demolishing the buildings. Since then, obstacles to fully realizing the government’s goals — like a flood of requests and a lack of unified rules — have proved challenging to overcome, which is why new amendments are currently under discussion in the House of Representatives.

The problem is that the scope of wildcat construction is overwhelmingly large: The government has since 2020 received 2.8 mn reconciliation requests — 1.2 mn of which were located in governorates outside of Cairo. Of those submitted since then, only 3% were accepted, generating about EGP 22 bn in fines — only 25% of what the government had anticipated it would collect.

Fines and fees will be reduced: Under the new draft amendments, reconciliation fees will be reduced. Inspection fees for potential violations are set at a maximum EGP 5k while 25% of a “seriousness fee” (the exact value of which will be outlined in the executive regulations) will be required. The executive regulations of the law will specify the exact breakdown of the new fees that will be broken down into different brackets. The new bill will try to make it easier for people to pay, according to Local Development Minister Hisham Amna, who said that it would allow people to pay the fees in installments over five years, with a 25% reduction if made in a single payment. House Local Administration Committee head Rep. Ahmed El Seginy described the law as more flexible than previous efforts to revive the real estate market and disincentivize future wildcat construction.

These amendments are expected to generate some EGP 20 bn in fines, which could increase to some EGP 100 bn if the government offers up more concessions, Rep. Ehab Mansour told us.

But disputes in parliament remain an obstacle: Amendments to the law are still seeing fierce debate in the House of Representatives. The draft law would, if passed, require both government intervention and flexibility to bring the housing crisis to a resolution, Mansour said. If executed appropriately it could help revive the real estate market, pave the way for bringing the real estate developers law on the agenda and ultimately improve regulation of the real estate market in Egypt, Mansour added.

Demolitions could be halted: The draft law of the proposed amendments stipulates demolitions of wildcat constructions would be repealed in favor of a more flexible approach to handling violations. Part of the rationale for this amendment is that certain building violations are located in areas where demolitions would be nearly impossible to execute. It's not yet clear if a moratorium on demolitions would apply to buildings situated on the Nile, archaeological land or public parking lots.

Collecting fines from construction violations could be a more useful approach instead: Instead of demolitions, extracting fines from wildcat building owners could be used to help finance low-income housing projects. But this is still expected to exclude encroachments on the Nile and archaeological sites.

Allowing more urban development: Governorates need to be granting more building permits in urban areas so that wildcat construction doesn’t crop up later, Mansor said.

Could reconciliation cause a boon in the larger real estate market? Putting an end to old violations will encourage contractors to return to construction, which should boost the real estate market and building materials, Mohamed Saad Sami, head of the Egyptian Federation for Construction & Building Contractors told us.

Stability in the construction industry is crucial: Although stability is essential for real estate development, setting five story limits on new buildings is a major problem, Mansour and Sami told us. Building permits are available, but regulations placing limits on things like building height have seen contractors bring their construction work to a halt, Mansour explained.

There are also lingering questions about non-residential licensing that the new amendments in parliament could soon resolve, Mansour says. Licensing for pharma manufacturers, schools, and parking spaces are among the types of buildings that could see some more clarity once the new amendments are settled.

But some government intervention will be needed first: An urgent memorandum to Prime Minister Moustafa Madbouly has requested that the deadline for handing over government projects be extended to four months so as not to crowd out companies and contractors in the market in light of price hikes and cost pressures, Sami told us.

Real estate developers are on the edge of their seats: Real estate developers are anxiously waiting for new amendments to be signed into law, Mohamed El Bustani, chairman of the board of directors of El Bustani Group and head of the Real Estate Developers Association in New Cairo and the new administrative capital told us. Reconciling with violators will help reassure construction companies and signal for more construction to commence, El Bustani explained. Reducing reconciliation fees will help drive up people’s demand for new real estate, he said.

But what’s important is what those fees end up financing: Using the finances generated from these fines to build more public housing projects could give real estate companies a big boost, Sami says. It would also provide much-needed financing to contractors who face challenges with liquidating letters of guarantee and are short on liquid currency at the moment, Sami explained.

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• The gov’t scraps the minimum issued capital requirement for companies applying for the golden license: Infrastructure and industrial companies no longer have to meet the minimum issued capital requirement to apply for golden licenses.
• Cabinet approves move to join BRICS development bank: Ministers approved plans for Egypt to join the USD 100 bn multilateral lender New Development Bank set up by the BRICS economic group to fund infrastructure and development projects in member countries.