Moderate costs; complicated buying process
March 28, 2018
How high are realtors' and lawyers' fees in Egypt? What about other property purchase costs?
|Registration Fee||2,000 (US$345)||buyer|
|Real Estate Agent's Fee||2.75% - 3.30%||seller|
|Capital Gains Tax||2.50%||seller|
|Costs paid by buyer||3.00%|
|Costs paid by seller||7.75% - 8%|
|ROUNDTRIP TRANSACTION COSTS||11.03% - 11.30%|
| See Footnotes
Source: Global Property Guide
How difficult is the property purchase process in Egypt?
Foreigners can buy property in Egypt, under Law No 230 of 1996.
Foreigners cannot buy more than two pieces of real-estate, which cannot exceed 4,000 square meters (sq. m.), and their purpose must be for a family member to live in the property. The purchase must have the approval of the Council of Ministers, which takes around two months.
Registering property in Egypt
If registered, the property cannot be sold or rented for five years. The purchase sum must be brought into Egypt in foreign exchange, through one of the public commercial banks (though this provision of the law is not enforced). Finally, the property must be rented furnished after the 5 years period, which has tax disadvantages (see tax section). If the foreigner is married to a local, the obvious solution is to get his/her spouse to buy the property and then let the property unfurnished, as locals do, usually avoiding tax.
Recently Egypt capped the total payable under the 3% registration fee rule at EGP2,000 (US$345), regardless of the purchase price of the property. So registration is now less expensive than it used to be. But the process still takes a long time.
'SIGNATURE VALIDITY COURT VERDICT' OWNERSHIP
Property in Sharm El Sheikh cannot be registered
Property in Sharm El Sheikh follows a different regime, because an administrative decree issued in 2005 abrogated the 1996 law for property in Sharm el Sheikh.
Under the decree, foreign purchasers in Sharm el Sheikh cannot acquire freehold rights, but only 99 year leases. Foreign purchasers must therefore follow a procedure called a 'signature validity court verdict', and various other steps. In Sharm the expert on this procedure is Zeiad Yehia, the Head of the Legal Department at City and Urban International, Sharm el Sheikh ([email protected] or Tel: +20 12 3344988). He is willing to provide free legal advice to Global Property Guide readers.
The 'signature validity court verdict' method could well become the dominant route for foreigners even outside Sharm, because it allows the foreigner to buy as many properties as he likes, rent them, and sell when he likes.
The following steps must be taken:
- A 'negative' certificate for the property should be obtained from the government, stating that there are no mortgages, pledges, or any other sort of rights on the property registered to any other party.
- The tax authorities must issue a certificate stating what taxes are due on the property.
- A sale / usufruct contract should be drawn up. The validity of the sale depends on the terms of the contract. So it is essential for the purchaser to have a detailed contract, defining the property boundaries, the purchase price, the method of the acquisition of the rights of the previous owner, and the method of payment. The contract must be in Arabic, since Arabic is the only language recognized by the courts.
- Purchasers must issue a power of attorney to their lawyer so that he can act on their behalf, a procedure which, oddly enough, first requires the purchaser to obtain a multi-entry visa. Then the lawyer files a legal suit to obtain a court verdict certifying that the signature on the sale / usufruct contract truly belongs to the seller (This is the 'signature validity court verdict'). This suit will take between 6-8 months.
The two methods, registration and the 'signature validity court verdict' each have their own advantages and disadvantages:
The advantages of registration:
Full and maximum protection. It is the recognized method in the Egyptian law for transferring real estate ownership.
You are not entitled to resell your property unless 5 years have passed since the date of purchase, and even then you would need to obtain a written approval from the Prime Minister.
WHICH OWNERSHIP ROUTE IS BEST?
The advantages of the 'signature validity court verdict' method:
This is the practical way for real estate transactions either in Sharm el Sheikh, Hurghada, or Marsa Alam or elsewhere. This method allows you to resell your property whenever you need, and without need for any approvals.
It is a weaker form of protection than registration. A real estate lawyer's services are much needed when buying property anywhere in Egypt. One reason is that people have in the past been reluctant to register properties, because it was costly to be the first owner of a building to register. Even in a modern area like Maadi, sometimes sellers have not registered because they still have an outstanding debt secured by the building, and fear that upon registration the creditor would be able to claim the building.
Footnotes to Transaction Costs Table
The round trip transaction costs include all costs of buying and then re-selling a property - lawyers' fees, notaries' fees, registration fees, taxes, agents' fees, etc.
To complete the transfer of property ownership, the sale must be registered with the local real estate department. Registration Fee has been revised and is based on the size of the property. The maximum registration fee is 2,000 (US$280).
|PROPERTY SIZE||FEE, EGP (US$)|
|100 sq. m.||500 (US$86)|
|200 sq. m.||1,000 (US$172)|
|300 sq. m.||1,500 (US$259)|
|1,000 sq. m.||2,000 (US$345)|
Because of the highly complex property registration process, Global Property Guide advises buyers to hire their own Arabic-speaking lawyers. Legal documents written in Arabic are the only ones recognized in courts. Legal fees are around 3% of property value.
Real Estate Agent's Fees:
Real estate agent fee is around 2.5% to 3% (plus 10% sales tax), paid by the seller.
Capital Gains Tax:
Since the Capital Gains Tax is charged on gross gains, it is classified as a transaction cost. Capital Gains Tax is imposed on the sale of land and buildings within the boundaries of an Egyptian city at the rate of 2.5% of gross gains of the seller.