Old houses at new prices?

01-02-2017 10:45 AM

Mariam Farouq


 

 

 

 

They don’t build them that way any more. My parents used to live in a magnificent flat in a Downtown Cairo building that was built in the 1930s. The rooms were spacious with lofty ceilings, high French windows, marble and wooden floors, wide glistening bathrooms, and a kitchen and maid area that were bright with natural light and, as my mother used to say, wide enough to host a football game. The building’s marble staircases with iron and wood railings and wood-and-glass lifts were masterpieces of elegance. My parents raised four children in this home; the children grew up to have their own families and come to visit with their spouses and children, and later with their grandchildren too, and the flat would accommodate all with generous space and light. To this day, three generations on, the family warmly reminisce about every nook and cranny of that magical home.

The precious flat was rented for EGP13 a month, a princely sum in the 1930s but the equivalent of less than one US dollar today when the rent remains the same. At such low rents maintenance is minimal; the lift often does not work and the building has lost its sparkle. And my parents’ flat is no exception. Old buildings—big and small, luxury and economy, residential and non-residential—all underwent the same dilemma. ‘Old buildings’ denotes buildings built before the 1960s, and those built after the 1960s but which are governed by the 1960s rental law. The law froze rents and immunised rental contracts against termination or cancellation. Even when a tenant died, the contract passed on to his or her son or daughter. The ownership rights of landlords were practically suspended; the tenants usurped these rights under the blessing of the law. 

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Housing dilemma

The 1960s rental law, still in force today, was issued among a bunch of ‘revolutionary’ [socialist] decisions at a time when Egypt swerved from a pre-1960s market economy to a socialist system. The ‘revolutionary decisions’ were intended against ‘exploitative capitalists and asset-holders’, and in favour of ‘oppressed, exploited classes’. Landlords were seen as belonging to the former sector, and tenants to the latter.

No one back then anticipated the enormity of the consequences of the ‘revolutionary decision’ that tampered with market mechanisms and violated the natural course of supply and demand. The market devised parallel techniques to rectify the unnatural course. Landlords resorted to demanding khelew, key money, from prospective tenants. When key money was later banned, landlords decided to sell the housing units they owned rather than rent them, a practice that was then totally new to Egypt. They recaptured their lost rights, but those who needed homes found they had to come up with unattainable lump sums of money to have a roof above their head.

By the time the community woke up to the magnitude of the calamity of fixed rents, it was too late. The ever-growing population gave rise to increased demand, and the shortage of prime locations and land meant that supply was inadequate and increasingly costly. Building owners resorted to economising on building costs in order to maximise profits. The landlord of old, who gave meticulous care to the design, construction, finishing and maintenance of his building, disappeared from the housing scene altogether, to be replaced by a contractor owner whose sole interest was to complete a shoddy but bright-looking building, sell off its units at high profit as quickly as possible, and move on to another profitable building project. The well-built well-kept buildings of old all but disappeared from the scene.

 

Landlord vs tenant

Today, there is serious talk in Egypt about rectifying the old buildings rental dilemma by bringing long overdue justice to landlords while at the same time taking the tenants’ predicament into consideration. A bill to rewrite the landlord-tenant relation is now with parliament’s housing committee.

[http://en.wataninet.com/opinion/editorial/rewriting-the-landlord-tenant-relation/18648/

http://en.wataninet.com/opinion/editorial/law-to-tackle-old-time-rents-justice-long-overdue/18601/]

Thousands of landlords view a new law as a victory that will restore some of their lost rights, whereas millions of tenants fear being thrown into the street. Watani met people on both sides of the rental imbalance to better understand the different aspects of the problem.

Eissa Yacoub says that although he is a tenant he supports the new bill, but only as long as the rent is raised by no more than 50 per cent of the current amount.

“When the rental contract was signed years [in fact decades] ago, the rent was quite high,” he says. “But now the buildings are old and it is the tenant who carries out most of the necessary repairs.”

But Mr Yacoub fears the new law would grant landlords the right to evict tenants or their heirs, and that it would annul a rental contract if the unit remains unoccupied for a long time, or if it could be proved that the tenant owned alternative housing.

Another tenant, Samia Adly, disagrees with Mr Yacoub and objects to a new law. “If the current law were amended, thousands of families would be thrown into the street,” she says. “Most of the tenants in old buildings are retired and their pension would never allow them to pay higher rent, nor would their health make a move possible.” She says that instead of amending the rental law the government should focus on improving tenants’ economic, social and health welfare especially given the current price hikes.

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“Can’t live in my own house”

Youssef Hassan owns an apartment building in Madinet Nasr, an upper middle-class neighbourhood in east Cairo, and rents out each of his eight apartments for a monthly rent of EGP80 (USD4.5). Mr Hassan wants the government to repeal the old law, which he describes as unjust. He hopes MPs would support the cause of the landlords of old buildings. They own buildings that are worth millions, yet they get a mere pittance out of renting them out. Worse, they are unable to live in their own properties because their tenants have the upper hand and can neither be evicted nor their contracts legally terminated.

“Every day I feel the bitterness of the injustice,” says Abul-Ela Hassan, another owner whose property is in the middle-class neighbourhood of Hadayiq al-Quba. “The building I own is worth more than EGP5 million and contains nine apartments, but neither I nor my son can live in our own property and are forced to rent other apartments in modern buildings [that do not fall under the 1960s rental law] at exorbitant rents; my son pays a rent of EGP1600 a month. A while ago, a municipal ordinance was issued ordering the top floor of my building to be demolished to ease the burden on the rest of the building, and for the property to be restored. Fearing the building would collapse, I had to spend hundreds of thousands of pounds to do the required work, although the income I get from the rent is peanuts.”

 

Freeing old contracts

Several bills were submitted to parliament, but only one has been accepted for discussion. The other bills, however, give insight into the volume of the old rentals dilemma. One of them was presented by Judge Osama al-Amir, founder and president of the Adala al-Nagiza (literally Justice that Achieves) group for legal consultancy and a lawyerat the Court of Cassation and the Supreme Constitutional Court. The main articles of Judge Amir’s bill stipulate that the situation of tenants of old buildings must be adjusted and current contracts terminated within one year of the date the law is put into force, as long as it serves the best interest of the country.

Another bill was presented to parliament by MP Inass Abdel-Halim. Its main features include exempting underprivileged tenants from rent increases for a period of two years, and providing a transitional period of one year for non-residential housing units, after which the current contract expires. The bill suggests that in case a unit is vacated then rented to a new tenant at a higher rent, 50 per cent of the rent is deposited in a special fund to support underprivileged tenants. It further proposes that a special court be established to rule in disputes between landlords and tenants and enforce the execution of court decisions within 90 days of the case being reviewed in court.

Amr Higazy, vice-president of the association for landlords hurt by the old rental law, is demanding that the landlord-tenant relation be freed of all rental contracts subject to Law 49 of 1977 and Law 136 of 1981, and that the older Law 131 of 1948 be enforced.

 

Unoccupied flats

“It makes no sense to have eight million unoccupied housing units because of their low rents, while there is a shortage of more than a million units at a normal rent,” Mr Higazy says. “Insisting on applying the current rental law is nothing but political and social corruption.” Mr Higazy’s remark alludes to the situation all-too-common in old buildings, when tenants no longer live in their housing units yet retain them closed since the rent is too meagre to constitute any burden on their finances.

Real estate expert and consultant Ibrahim Awad insists that the old rental law is totally unfair and calls for its amendment in such a way that would create a balance between the rights of landlords and tenants, especially those in less privileged positions. Mr Awad explains that freeing the relation between landlords and tenants will increase the supply of housing units for rent. Reports prove that there are millions of unused housing units, most of which are governed by the old rental law where tenants have refused to give up their rented units for various reasons, such as keeping them for their children, given that retaining these units costs them next to nothing.

 

Building maintenance

Tenants’ rights Mr Awad says, should not be overlooked, especially in case of those on low incomes. But old buildings must be maintained, so if the tenants are ensured reasonably low rents, they ought to contribute to the cost of maintenance and repairs.

Contracting consultant Magdy Yunis says that if parliament endorses the new rental law, it will be clear that the government is pushing to act in favour of the real estate tax which would provide additional income for the State.

Professor of Economics Amir Atef suggests that rents should be increased gradually over a period of three to six years, taking into account seven important factors: the year the unit was built, the year the contract was signed, the unit size, the neighbourhood where it is located, thecondition of the building, the current inflation rate and the rate of increase in income.

 

Economic study

Vice-president of the Adala al-Nagiza group, Munir Murad, who conducted an economic study on old rentals, says that if parliament decides to keep applying the unjust old rental law it will be a setback to justice in Egypt. There are several reasons why the State should expedite the annulment of the law and approve a new law which will achieve justice for all. First, the old law contradicts the articles of the Constitution and the stipulations of Islamic sharia. Landlord complaints have, for decades, fallen on deaf ears. A new law must be issued to correct the injustice felt by landlords so that they can live in the buildings they own and provide housing units for their children. The new law will also help reduce the number of collapsing buildings, since the meagre rents do not allow landlords to make the necessary repairs and maintenance for their buildings. For many years these housing units were exempt from real estate tax because of the small rental value, resulting in the State incurring losses that amount to billions of pounds. Redefining the landlord-tenant relation will also solve the problem of many on low incomes who resort to living in slums or who have no other option but to rent units in modern buildings with high rental values.

 

Risk to the under-privileged

Muhammad Abdel-Aal, legal consultant to the union of tenants of old rentals, says the amendments to the old law carries a constitutional fault, and that untying the association between landlords and tenants could result in throwing 25 million people into the street.

“The MPs who drafted the bills are biased towards property owners at the expense of the marginalised and under-privileged in society,” Mr Abdel-Aal says.

As for the article that suggests establishing a fund to support underprivileged tenants, Mr Abdel-Aal sees it as an alluring but false initiative as it does not bind landlords to provide any support for tenants. He believes it would only aim to delegate additional responsibilities to the tenants and place them in a weak legal position, leading eventually to their eviction. For instance, it forces them to share in the maintenance of the building which, in case they fail to do so, is considered a valid reason to evict them.

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Watani International

1 February 2017

 

 

 

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