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Buying property in Egypt: scams and pitfalls

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Everything you need to know is included in our Egypt Property Pack

Egypt's historical heritage and growth potential are attracting more foreign investors to its real estate sector.

However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.

Both our property-owning customers and our local associates have brought a range of concerns to our attention. We've listed them all in our Egypt Property Pack.

This article will give you a quick overview of some of the potential pitfalls you could face.

Is it safe or risky to invest in real estate in Egypt?

Egypt has faced periods of political instability and security concerns in recent years, particularly in regions near the Sinai Peninsula. For instance, the rise of extremist groups in Sinai has led to sporadic violence and insecurity in the area.

While major cities like Cairo are generally safe for foreigners, it's crucial to monitor the security situation and consider potential risks before investing in specific regions. The 2015 downing of a Russian airliner over Sinai highlighted the security challenges in the region, leading to a decrease in tourism and potentially affecting property values.

Scams targeting foreign property buyers are not uncommon in Egypt.

An example is the practice of "double selling," where unscrupulous sellers attempt to sell the same property to multiple buyers. Such scams can result in costly legal battles and financial losses.

In one reported case, a British couple purchased a villa in Hurghada only to discover that another family had also been duped into buying the same property. This highlights the need for due diligence and the importance of verifying property ownership through legal channels before making any payments.

Navigating the Egyptian bureaucracy can be a daunting task for property buyers.

The convoluted process of obtaining property titles and permits can lead to delays and frustrations. Corruption within the bureaucracy can exacerbate these challenges.

In one well-documented case, the construction of the "Seven Stars" resort in Marsa Alam was delayed for years due to disputes over land permits and allegations of corruption, leaving foreign investors in limbo.

Transparency in property transactions is a concern in Egypt. While digitization efforts have improved record-keeping, there have been cases of forged documents and fraudulent property listings.

For instance, properties may be advertised with exaggerated claims, such as proximity to the sea or unrealistic rental income projections. Foreign buyers should exercise caution, conduct thorough property inspections, and seek professional advice to ensure they are making informed decisions.

Resolving property disputes in Egypt can be a protracted and arduous process. The legal system may not always provide a swift resolution, and outcomes can be unpredictable.

For example, property disputes involving land ownership can take years to resolve through the Egyptian courts, causing significant financial and emotional stress for those involved.

Foreign buyers should be prepared for the possibility of lengthy legal battles and should engage experienced legal counsel to navigate these complexities.

The Egyptian government has implemented various policies to attract foreign investment in real estate, such as offering residency permits to property buyers who meet certain criteria.

However, these policies can change, and their implementation can be inconsistent. For example, changes in property tax laws or residency permit requirements can have a direct impact on the financial viability of a real estate investment.

Buyers should closely monitor government policies and their potential impact on their investment.

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Potential real estate buying mistakes in Egypt

The concept of "Tabu" system

When buying residential property in Egypt, a common mistake that you might not be aware of, especially as a foreigner, involves the 'Tabu' system.

The Tabu is the official land registry in Egypt. Understanding and navigating this system is crucial because not all properties in Egypt are registered under Tabu.

You should be aware that many properties are only supported by 'Urfi' (informal) documents, which are not recognized by the official land registry.

This distinction is particularly important because buying a property with only Urfi documents can lead to legal complications. These complications arise because Urfi documents are not legally binding in court, potentially leading to ownership disputes.

This issue is unique to Egypt due to its specific land registration practices.

In terms of frequency, this mistake is quite common, especially in rural areas or in older urban developments where formal registration may not have been completed. You are advised to ensure that any property you are interested in is registered in the Tabu system.

This can be verified by asking for the Tabu certificate, which is a legal document proving ownership and the absence of any liens or encumbrances on the property.

To navigate this, you should work closely with a local real estate lawyer who is familiar with the Egyptian property market and its legal intricacies. This professional can help you verify the legal status of the property and ensure that all necessary documents are in order.

The risks related to "Agricultural Land"

Another lesser-known but significant pitfall in buying residential property in Egypt, especially for a foreigner like yourself, is related to the 'Agricultural Land' regulations. In Egypt, certain lands are designated as agricultural, and they are governed by strict laws that prohibit their use for non-agricultural purposes, including residential development.

This is particularly relevant in areas around cities like Cairo and Alexandria, where urban expansion is encroaching on agricultural lands.

The issue here is that sometimes, agricultural land is illegally converted and sold for residential use. You should be cautious because buying such a property can lead to serious legal issues. The Egyptian government has been cracking down on illegal land use, and owning property on illegally converted agricultural land can result in legal complications, including demolition orders or fines.

This mistake is not as common as others, but its consequences are severe. To avoid this, you are advised to check the land's official use designation before purchasing. This can typically be done through local municipal records or with the help of a local lawyer.

It’s important to confirm that the land is legally zoned for residential use and not subject to agricultural land laws.

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The "Sinai Land Law" risk

Understanding the complexity and specificity of property laws in Egypt is essential, especially regarding the 'Sinai Land Law'.

This law is particularly pertinent for you as a foreign buyer, as it imposes stringent restrictions on property ownership in the Sinai Peninsula, a region with strategic and historical significance for Egypt.

The Sinai Land Law restricts the ownership of land and property by non-Egyptians in the Sinai Peninsula.

This area is subject to heightened security measures due to its geographical location and historical context. As a foreigner, you may face limitations such as being unable to own land outright in certain parts of Sinai.

In some cases, foreign ownership is limited to long-term leases, typically not exceeding 99 years, and these leases come with specific conditions.

The frequency of issues related to the Sinai Land Law is relatively low for the general property market in Egypt. However, if you're specifically looking at properties in the Sinai region, this becomes a highly relevant concern.

The allure of tourist destinations like Sharm El Sheikh might draw your interest, but the legal landscape here is different from other parts of Egypt.

To navigate this situation, you must engage with a legal expert who has specific experience with the Sinai Land Law and property transactions in this region. This expert can provide you with detailed guidance on what is legally permissible for foreign buyers in Sinai.

You should also be prepared for a potentially lengthy and complex property vetting process, as the Egyptian authorities take these regulations very seriously.

The "Real Estate" tax law in Egypt

Another specific and often overlooked pitfall in buying residential property in Egypt, particularly for a foreign buyer like yourself, involves the 'Real Estate Tax Law'. This law, which has undergone changes in recent years, can have significant implications for property owners.

Under the Real Estate Tax Law, property taxes are levied on residential properties in Egypt.

However, what is unique and potentially challenging for foreign buyers is understanding the exemptions and the tax calculation methods, which are different from many other countries.

For example, there is an exemption threshold for the value of the property, below which no tax is due. But the way property values are assessed for tax purposes in Egypt can be quite different from market values, and this assessment is often not straightforward.

The issue here is that as a foreigner, you might not be familiar with the complexities of the Egyptian tax system, and misunderstanding these can lead to unexpected financial burdens. Failure to comply with tax obligations can result in fines and legal complications.

While this issue is not unique to Egypt, the specifics of the Egyptian Real Estate Tax Law, its exemptions, and the valuation process are distinct and can be confusing.

It's important for you to engage with a local tax consultant or a lawyer who can guide you on your tax liabilities for any property you intend to purchase.

They can help you understand the tax implications, ensure compliance, and avoid any unforeseen costs.

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"Ard Gawafa" or garden land

A unique and often overlooked aspect of buying residential property in Egypt, particularly relevant to a foreigner like yourself, involves the complexities surrounding 'Garden Land' (Ard Gawafa).

This refers to land that is designated for garden or agricultural purposes but is located within urban or suburban areas.

The key issue with Ard Gawafa is its legal status and the restrictions associated with it. While these lands are often attractively priced and located in desirable areas, they come with stringent regulations regarding construction and land use.

In Egypt, converting garden land to residential use requires a complex process of legal approvals and often significant fees.

There's also a risk that such conversions may not be approved at all, which can leave you with a piece of land that cannot be legally developed as intended.

This pitfall isn't widely known among foreigners, and the allure of seemingly prime land at a lower cost can be tempting. However, you need to be extremely cautious. Buying Ard Gawafa without understanding the legal constraints can lead to investments in land that cannot be developed or used as you might wish.

The prevalence of issues related to Ard Gawafa is particularly notable in expanding urban areas where the distinction between agricultural/garden land and urban land can become blurred. To navigate this, you should always verify the zoning and legal status of any land you're considering purchasing.

Work with a knowledgeable local lawyer and perhaps a real estate agent who can help you understand the specific regulations and restrictions associated with garden land in Egypt.

"Qānūn al-Irth al-Shar'ī"or Sharia Inheritance law

Another specific and often overlooked pitfall for foreigners buying residential property in Egypt relates to the "Sharia Inheritance Law".

This law could significantly impact your property investment in the future, particularly in the event of inheritance.

Egyptian inheritance laws are governed by Sharia principles, which can be quite different from inheritance laws in many Western countries.

According to these principles, property is distributed among family members in fixed shares, with specific portions allocated to spouses, children, parents, and other relatives. This system can lead to a situation where your property in Egypt may not be passed on according to your personal wishes or the inheritance laws of your home country.

For instance, if you were to pass away, your property in Egypt would be distributed among your heirs in accordance with these Sharia-based rules, which might differ significantly from your expectations or intentions.

This can be particularly challenging for foreigners who are unaware of these laws and could lead to unintended consequences for the distribution of their assets.

The prevalence of issues related to Sharia Inheritance Law among foreign property owners in Egypt is not well documented, but it is a crucial consideration for long-term property planning. To navigate this, you should consult with a legal expert in Egypt who is familiar with both local laws and international legal considerations.

This professional can help you understand how Egyptian inheritance laws may affect your property and assist in creating a plan that aligns with your intentions as closely as possible within the legal framework of Egypt.

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"Wakala" or "Power of Attorney" practices

Another less known but significant issue for foreigners buying property in Egypt is related to the "Power of Attorney" (Wakala) practices.

This is particularly relevant when you are unable to be physically present in Egypt for the entire duration of the property transaction process.

In Egypt, it's common to use a Power of Attorney to authorize another individual, usually a lawyer or a trusted associate, to act on your behalf in legal matters, including property transactions. However, the pitfall lies in the specifics of how these Powers of Attorney are drafted and executed.

Egyptian law has strict requirements for the validity of a Power of Attorney, especially when it is used for real estate transactions.

These requirements include notarization, specific wording, and sometimes even the need for approval from the Egyptian consulate if the document is issued abroad.

The issue is that if a Power of Attorney does not meet all the legal requirements, any actions taken by the person holding it might be deemed invalid.

This could lead to significant legal complications, potentially invalidating property transactions conducted under an improperly executed Power of Attorney.

While the use of Power of Attorney is a common practice in many countries, the specific legal requirements and potential pitfalls in the context of Egyptian real estate law are less known to foreigners.

To avoid this pitfall, you should work closely with a reputable Egyptian lawyer who can ensure that any Power of Attorney used in your property transactions is correctly drafted, executed, and aligned with Egyptian legal standards.

The awareness of the "Compulsory Rental Law" risk

Another specific and crucial aspect to be aware of when buying property in Egypt, especially as a foreigner, is the "Compulsory Rental Law".

This law, which is unique in its application in Egypt, can significantly impact property owners who rent out their properties.

The Compulsory Rental Law in Egypt subjects rental agreements to stringent regulations that heavily favor tenants. One of the key features of this law is that it allows tenants to have extremely long-term leases and places limits on the ability of landlords to increase rents.

In some cases, these rental agreements can be automatically renewed, and tenants can have the right to occupy the property for decades, often passing the lease down to their heirs.

For you as a property buyer, especially one from abroad, this can pose a significant risk if you plan to buy a property to rent it out.

You might find yourself locked into a long-term lease with a tenant at a rental rate that does not reflect the market value, and with limited ability to regain control of the property.

It's crucial to be aware of the terms and conditions of any existing rental agreements if you are purchasing a property that is already rented. It's advisable to consult with a local real estate lawyer who can help you understand the implications of the Compulsory Rental Law and how it might affect your investment.

They can provide guidance on how to structure rental agreements in a way that is compliant with Egyptian law while protecting your interests as much as possible.

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"Haqooq Miah Al-Nil" or Nile river water rights

One specific and crucial aspect to be aware of when buying property in Egypt, particularly agricultural or garden land, is the "Nile River Water Rights" or in Arabic, "حقوق مياه النيل" (Haqooq Miah Al-Nil).

This is particularly important given Egypt's dependence on the Nile for the majority of its water supply.

The Nile River Water Rights are governed by a combination of national laws, local regulations, and historical agreements. These rights determine how water from the Nile is distributed and used for irrigation and other purposes.

In the context of buying property, understanding these rights is essential, especially if you are considering agricultural land or property in areas where irrigation is vital.

The complexity arises because the allocation of Nile water for irrigation can be heavily regulated, and there may be restrictions or specific conditions attached to water usage. For instance, if you purchase agricultural land, you need to ensure that it has legal entitlements to draw water from the Nile for irrigation purposes.

Inadequate water rights can severely impact the land's agricultural productivity and overall value.

As a foreign buyer, it's imperative to conduct thorough due diligence regarding Nile River Water Rights associated with any property you're considering in Egypt.

This should involve consultations with local experts, including real estate agents with regional knowledge, legal professionals, and possibly local government or irrigation authorities.

The "Simsars" risk

A more specific issue related to real estate transactions in Egypt for foreigners like yourself involves the informal practice of dealing with "Simsars" – the local term for brokers or middlemen in the Egyptian real estate market.

Unlike formal real estate agents, Simsars often operate in a more informal capacity, and their role and practices can be quite distinct from formal real estate agents as understood in many Western countries.

Simsars play a significant role in property transactions in many parts of Egypt, especially in areas where formal real estate agencies are not as prevalent.

They typically have extensive local networks and knowledge, which can be valuable. However, their informal status can also lead to challenges such as lack of transparency, absence of formal licensing or regulatory oversight, and potential for conflicts of interest.

The specific pitfall here is the risk of encountering unregulated transactions, unclear commission structures, and sometimes even unethical practices.

As a foreign buyer, you might find it challenging to navigate the local real estate market through a Simsar due to language barriers, cultural differences, and a lack of understanding of the local market dynamics.

To mitigate these risks, you should consider working with a formal, licensed real estate agent in addition to or instead of a Simsar, particularly one who has experience dealing with foreign buyers.

It's also crucial to have a clear agreement regarding the Simsar's fees and services.

Engaging a local lawyer who understands the real estate market can also provide an additional layer of security and guidance in your property transactions.

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