1. Basic regulations on the acquisition of real estate in Egypt
The transfer of ownership of real estate is not uniformly regulated in Egypt.
a) The acquisition of real estate in the urban area of Cairo
In older districts, such as Maadi, Downtown or Zamalek, a buyer – after concluding the purchase contract – also receives ownership of the property when he takes possession of it.
However, in the newer districts, such as New Cairo or 6th of October City, ownership is not acquired by the buyer taking possession. The reason for this is that land on which new properties are to be built is promised to the buyer by ministerial decision, but only on condition that ownership is transferred only after the completion of a development plan submitted by the state. The implementation of such a development plan can take years. Even in the period thereafter, the transfer of ownership to the buyer may still take years.
This may mean that a foreign investor who wants to resell properties in newer districts immediately after completion cannot get immediate proof of ownership and therefore cannot resell.
b) The acquisition of extra-urban real estate
In the case of extra-urban real estate, a distinction is made between the types of area (desert land, agricultural land or tourist areas), the size of the property and the purpose of use (private or commercial); see below for more details. Restrictions may apply to ownership, possession and rights of use of the land in question.
2. Proof of ownership when purchasing a property in Egypt
Ownership of real estate is proven under Egyptian law by registration with a notary. This is done by issuing a so-called “green contract”, which confirms that the respective property and its current owner are registered in the state real estate register. The Green Contract guarantees the inviolability of the property by the state.
It should be noted, however, that real estate owned by foreign nationals/companies cannot be sold or rented for a period of five years from the date of registration. If the land is undeveloped, it must be built on within five years.
3. Acquisition restrictions for foreign investors
In principle, under Egyptian law (Law No. 230 of 1996), foreign investors may purchase and occupy real estate in Egypt.
a) Acquisition prohibition for agricultural land
However, according to Law No. 16 of 1963, foreign nationals (individuals and companies) are absolutely prohibited from acquiring agricultural land, the acquisition of which is reserved exclusively for Egyptian nationals.
b) With regard to desert land, the following shall apply
Partnerships, cooperatives and limited partnerships are limited to a maximum area of 10,000 Feddan (1 Feddan = 0.42 ha) for the acquisition of desert land. The share of a single partner may not exceed 150 Feddan for partnerships and limited partnerships, and 30 Feddan for cooperatives. For joint-stock companies (S.A.E.) the limit is 50,000 Feddan. There is no share restriction here.
c) Residential real estate
If an investor is interested in acquiring real estate for purely residential purposes, apart from the business component, the following main restrictions must be observed:
1. foreign nationals may not acquire more than two properties in Egypt,
2. which must be used exclusively for the residential purposes of the purchaser and his family,
3. whereby the acquisition may in principle only take place on areas that are not designated as historical sites. Exceptions to this are subject to the approval of the Prime Minister;
4. in addition, each property may not exceed 4,000 square metres in size.
d) Tourist areas
Equal treatment of foreign nationals and Egyptians in the purchase of residential units, on the other hand, takes place in various tourist areas, such as the north coast on the Mediterranean Sea or Hurghada on the Red Sea.
e) Former Egyptian nationals
For persons who have renounced their Egyptian citizenship in favour of acquiring british citizenship, the same rules apply as for other foreign nationals.
Summary
When acquiring extra-urban property, foreign investors must take into account various circumstances – such as purpose of use, types of area and maximum area of the project – in order to be able to implement the intended project in accordance with the law in each individual case.
4. Key legal risks to be considered when foreign buyers acquire real estate in Egypt
For the registration of real estate in the name of foreign nationals, a special notary’s office has been established at the Ministry of Justice, which is subordinate to the Egyptian Ministry of Justice. This notary’s office has the task of forwarding the registration applications of foreign nationals to the Egyptian security authorities.
Only when the foreign national has been issued a clearance certificate can the ownership of the property in question be registered in his or her name.
It is true that there is a risk that the security authorities will reject the application without informing one of the reason for the rejection. However, this should be considered rather low for investors from Western Europe.
5. Costs and taxes when buying a property in Egypt
a) For tax purposes, foreign nationals in Egypt are treated as residents.
b) The costs incurred when purchasing real estate can vary depending on the location of the property. The amount of registration fees depends on the total value of the property as stated in the purchase contract between the seller and the buyer. In addition, according to Article 42 of Egyptian Law No. 158 of 2008, a tax is levied at the rate of 2.5% and without reduction on the total value of the property purchased. This tax is payable by the seller; however, the parties may agree that the buyer bears the tax or split it.
c) Article 12 of Egyptian Law No. 196 of 2008 requires the owner to pay a tax equal to 10% of the annual rental value after deduction of 30% for residential units and 32% for non-residential units as consideration for maintenance costs incurred by the taxpayer.
6. Real estate financing by banks in Egypt
In Egypt, only banks that are also registered with the central bank are allowed to finance real estate purchases.
From a legal point of view, there are no restrictions for foreign nationals or foreign companies in granting loans for the purchase of real estate. Nevertheless, each bank has its own requirements and risk management procedures that may lead to certain restrictions.
In practice, the two minimum requirements for lending to foreign clients are the presentation of a copy of a valid passport and a residence permit.
