BUILDING VIOLATIONS BRING OUT TAILOR-MADE PANDEMIC FOR REAL ESTATE

from Invest-Gate Magazine, September 2020 Issue

CORONA FEARS CHANGE COLOR OF PROPERTY MARKET SENTIMENT

BY RANIA FAZZA

Over the years, building violations have posed a tremendous dilemma in Egypt. Lately, these infringements have been exhibiting an upward trend, given the state’s preoccupation with combating the Coronavirus pandemic. Correspondingly, the Egyptian government recently imposed a six-month ban on building permits, halting the construction of private housing in various urban cities, including Greater Cairo and Alexandria, in a crackdown on housing code violations.

This move, however, partly gives way to the predictions of doom and gloom in the country’s property sector, which is already grappling with the COVID-19 headwinds and adapting to the new normal of the outbreak. Building on that premise, Invest-Gate digs deep into the matter and reaches out to several market experts to scrutinize this decision-making, which comes into effect after Egypt called for reconciliation over construction infractions recently, aiming to outline the law’s impact on private property developers and the overall real estate landscape.

Market Slightly ‘on Pause’

Last May, the new amendments to the “Emergency Law” were enforced, after approval of President Abdel-Fattah El-Sisi. Under these reforms, all ongoing private housing construction will pause for six months until owners present masterplans and designs to verify fitting with building codes, which specify the standards for established projects, Prime Minister Mostafa Madbouly announced in a recent Cabinet statement, stressing that violators will not be tolerated in this critical period.

Accordingly, members of the armed forces were granted the power of judicial oversight. The military prosecution was also empowered to investigate related violations, limiting the role of the Public Prosecution to referring offenders to the judiciary at its discretion, the statement added.

This, however, raised the ire of local real estate players. Mena Group Founder and Vice-Chairman of Egyptian Businessmen’s Association (EBA) Fathallah Fawzi argues that the bill will leave a negative imprint on the Egyptian property market, including developers, contractors, and all sector-related partners, who are already ladened with challenges amidst the COVID-19 hit.

In the same vein, Tatweer Misr President and CEO Ahmed Shalaby tells Invest-Gate, “I totally agree with revising some building licenses in some provinces, due to the increasing number of infringements in these areas, which will consequently add to the state’s endeavors for the redesign of Egypt’s populated cities. But, putting a grinding halt to the entire building process creates complications for license holders.” “License holders have initiated the construction process already, hired contractors and perhaps sold units, and are committed to delivery dates. I believe it would have been ideal to allow them to construct under governmental supervision. In case of any infringements or incompatibility between property design and governmental vision, alterations should be negotiated by both parties,” he continues, adding, “Terminating issuance of new licenses is essential, yet, suspending active licensed construction processes lacks encouragement of sustained foreign investments.”

The CEO further highlights, “Conversely, the [Emergency Law] will not undermine Tatweer Misr’s work, for example, as our developments are being carried out in coastal areas and new cities, which are excluded from the ministerial decree.” This comes together with industrial, tourism, government, and national projects, according to the Cabinet statement.

Along the same lines, Fawzy attributes the multitude of building non-compliance cases in the North African country to government negligence as well as lack of authorities’ supervision of building work and rehabilitation of plaintiffs’ property. “The absence of such offenses in new cities serves as a case in point,” he notes.

Core of the Matter

The building codes have been there for ages. Yet, compliance is generally absent or limited, especially in the widespread informal building sector, which relatively has restricted access to legal requirements and little financial capacity to comply.

Further exacerbating the matter is the fact that while informal housing remains rampant in Egypt, unregistered properties are also rising hand-in-hand at an alarming pace, with over 1 mn residential units identified until last year, according to BEO. Even more challenging when 90% of the country’s total houses are unregistered, according to Oxford Business Group’s “The Report: Egypt 2018.”

It turns out that illegal buildings are often found in unplanned areas or unsafe slums, which constitute almost 39% of all built environments in Egypt, according to a 2016 research paper by the Central Agency for Public Mobilization and Statistics (CAPMAS).

Some initiatives are being taken by the state to problem-solve such the adoption of an EGP 31 bn response plan to eradicate slums, including 357 unsafe areas nationwide, with 192 revamped so far, said Minister of Housing, Utilities, and Urban Communities Assem El Gazzar in a ministerial statement last year.

Accordingly, all unplanned settlements in Egypt will be rehabilitated by the end of 2020, Executive Director of the Slums Development Fund (SDF) Khaled Siddiq earlier uncovered.

But given the excessive breaches, last January, El-Sisi ratified a law allowing reconciliation with the state over construction infractions, stipulating that offenders shall be fined a sum of money per square meter of the violating building’s area of no less than EGP 50 and not more than EGP 2,000. Until March, Egypt’s Local Development Ministry had received 300,000 requests for reconciliation in building violations, the Cabinet revealed in a separate press release.

During the same month, the Egyptian parliament approved the Unified Building Code, giving the government sharper teeth to clamp down on illegal construction. The long-awaited amendments extend the validity of building permits to three years from one, along with imposing harsher penalties on violators.

“Most notably, the country’s engineering management field is in itself corrupted in a way or another, not mention the weakness of the administrative body that follows up on building operations, and thus, the majority of homes are built illegally,” El Fayoumi continues. “The foremost solution to this matter is salary increments.”

All in all, just like a jigsaw puzzle, Egypt’s laws and legal system are full of such layers of complexity, the official concludes, remarking, “There is no surprise that building codes are convoluted as well. On that note, the Egyptian government should adjust certain regulations and procedures to address impediments to compliance with these legal requirements.”

MARKET RESEARCH REPORTS WITHOUT DATA, IT’S JUST AN OPINION

SUCCESSFUL BUSINESSES WORLDWIDE CONDUCT MARKET RESEARCHES PERIODICALLY AND STAY TUNED TO THE CHANGING MARKET TRENDS TO RETAIN THEIR COMPETITIVE EDGE

Why Is Market Research Important In Real Estate? The Real Estate market is very large and compatible with changes that individuals and corporates can waste their time and get misleading information from the larger market. Individuals do not have the time, money or energy to keep up with the unpredictable market changes. Keeping pace with price changes, marketmovements and competition, is a full-time job in itself. The permanent success of new businesses is based on regular market research done by their owners to understand their target market, identify consumer problems, pinpoint realistic competitors, to keep up with market trends and maintain competitive edge by sizing opportunities. There is more diversification in Egyptian real estate than any other country in the region. In Egypt, the real estate market is locally oriented and each market has its own unique behavioral pattern. International development consultants such as Coldwell Banker Commercial Advantage assist in mapping investment hotspots and understanding its vital parts for investors, end users, developers and company owners. Market research reports provide an understanding of the market and an insight into the most affordable and profitable locations for investment, price trends and the classifications of the Egyptian real estate market. Do the necessary research, study, and analysis before making any investment decisions, and learn how to keep your thumb on the market pulse. Doing that can be a challenge in itself, so where do you turn for the right information? Objective data isn’t always the most apparent or popular. That is why you need to utilize a power team. There is a responsibility to know the right plays to make, as the market is constantly shifting. Market research reports utilize data from different perspectives within the local market to help you take the right investment decisions.

LEARN MORE BEFORE YOU INVEST

“Before you invest, make sure you understand the risks & the potential impact that any investment might have on your overall financial goals.”

DEVELOPMENT CONSULTANTS & THE REAL ESTATE DEVELOPMENT PROCESS

THE IMPORTANCE OF MARKET RESEARCH

Market research replaces excessive reliance on intuition and complacency due to past success in real estate decisions. There is a misconception that offering new developments creates their own demand. In everyday language, some market players believe that if they "build it, (buyers / renters) will come". This attitude towards real estate developments can lead to costly failures such as empty shopping centers or office buildings. The problem with this approach is that intuition replaces the systematic search for evidence of demand for an apartment complex, administrative building, or shopping centerbefore mobilizing resources forits development. Given the large amounts of money and bank loans used by investors in these projects, failure to establish evidence of demand for an asset will lead to problems forthe developers, banks and investors alike. Thus, market research protects developers, investors and propertymanagers from costly investment and developmentfailures.

Primary Research

Monitor the effec�veness of sales, exis�ng business prac�ces, the quality of services, and the tools used for communica�on Assess the current market compe��on by evalua�ng the business plans of the compe�tors

Secondary Research

Collec�on of already published data to create a company database that helps in situa�on analysis Devising strategies for benchmarking and to help in determining the market segments that a company should target

Benefits

Iden�fy the problem areas in the business Understand the needs of exis�ng customers and why they choose the project over compe�tors Iden�fy new business opportuni�es & change market trends Recognize new areas for expansion, and increase customer base Discover poten�al clients and their needs Set achievable targets for business growth, sales, and latest project trends Make well-informed market decisions about the services and develop effec�ve strategies

Some developers and real estate investors fail to realize the importance of market research; which is a vital component to assist businesses with all the essential information and making wise decisions and valuable insights into shifts in the economy, competitors, ongoing market trends, demographics, and customers' expenditure. Developers who lack the

knowledge or underestimate market research prior their investment can threaten the outcome. Therefore, market research is the most important component of real estate investment studies, as it forms the basis of each calculation and its decision.