I resume today the review of the 2019 “Problems on hold” that had not been resolved during that year, but have to wait for 2020 for solutions. I started that review three weeks ago under the title “The luggage we carry into 2020”, but interrupted it last week to extend my warm wishes to Egypt’s Churches and congregations for a blessed Nativity Feast. Today, I reopen the file on the luggage we carry into the new year, with the issue of the “old rental values” of housing units, whether residential or non-residential, an issue which has become a severe, chronic public pain. It started some seventy years ago when, among a bunch of socialist revolutionary decisions taken by Egypt’s President Gamal Abdel-Nasser, rental values were frozen indefinitely and rental contracts immortalised. On the face of it, the move favoured tenants, turning them by law into de-facto owners of the houses they rented. The rights of the actual owners, on the other hand, were thrown to the wind.
The last twenty years saw a number of legislative initiatives that partially address the rentals problem by attempting to free rental values and lift the injustice against landlords. The idea was to phase out the strict regulation that governed the rental housing market, and turn it into one governed by the time-honoured market laws of supply and demand. However, all attempts to start the process of raising rents lacked the strong political will to make them work; the decision makers were too wary of angering the wide sector of tenants, especially tenants of residential units. The attempts were restricted to sporadic legislation that allowed only slight, conditional gradual rises in the rental values of non-residential units. The housing market was not deregulated, nor was the tenant-landlord relation any closer to a supply-and-demand-governed one.
Last year it looked as though the long awaited justice would be decisively, even if partially, restored. The government submitted to the House of Representatives a bill to amend the old rental law for non-residential units. The bill was accepted and approved by the House’s Housing and Facilities’ Committee which stressed that the objective of the bill was to achieve public benefit rather than favour a specific sector over another, especially given that Egypt’s Constitution bans any such discrimination.
The bill applies to all old rental contracts that concern any professional, commercial, service, or vocational activity. It proposes a five year transitional period that would start the date the law is passed. At the start of this transitional period, the rental value shall rise to five-fold its current value cited in the rental contract, and would apply for one year, following which a 15 per cent increment would apply annually for the following four years. Once the five-year period is over, the rental contract expires and the unit is returned to the landlord, implicitly meaning that the rental value is freed; it becomes subject to agreement between landlord and tenant according to the market law of supply and demand.
According to the House of Representatives’ Housing and Facilities’ Committee, the law, once passed, would apply to some 3 million residential units currently governed by the old rental law. This would have the effect of rectifying long-ignored flaws in the Egyptian market, by significantly restoring value to Egypt’s real estate wealth. Landlords, getting fair rents for their houses or flats, would have the means to properly maintain them and restore them when needed. It is now a common complaint that buildings are left to decline and rot owing to the scarce, insufficient revenue they generate. If real estate wealth regains value, it would cover an important aspect in the national plan for economic reform.
The rental law for non-residential housing units, however, involves a price to be paid for restoring the long-lost justice to landlords. That price would be paid by the public and the tenants who might be using their units for professional, commercial, service, or vocational activity. I re-publish what I wrote on this issue in my editorial of 30 June 2019 under the title: “Partial justice for Egypt’s landlords”.
I wrote: “Freeing the rent of non-residential units is a justice long overdue, and will have consequences … The prospective law that would free rentals for non-residential units will partly recapture justice in the real estate market, so that five years after the law is passed the eternal supply and demand market law would again reign supreme…
“However, we must expect the new law to create some inflation that will be felt by all Egyptians, since the rise in rentals of non-residential housing would automatically raise the cost of the services or products offered there. We have to expect that fees charged by doctors, lawyers, accountants, architects or any other professionals operating from such units would rise …” This is something we must all grasp, bearing in mind that the market will eventually correct itself if anything gets out of hand.
The last parliamentary round closed, however, without the bill undergoing a final vote, meaning that passage of the law has been postponed to the current parliamentary round. In fact, the legislative agenda announced on 7 October 2019, when the new parliamentary round set off, included the bill for a new rental law for non-residential housing units. The parliamentary agenda indicated that it had been referred to a joint committee formed of the Housing, Plan and Budget, and Constitutional and Legislative Committees. As the House of Representatives carries the bill into the new parliamentary round, we carry it into the new year, hoping it will be approved and the law passed. Even with the somewhat unsavoury consequences we might expect, it will surely bring back long overdue justice.
12 January 2020