The bill for amending the old rental law for non-residential housing units is expected to have a huge impact on the real estate market once it is passed into law by Parliament. Conspicuously, the bill has already been with the House of Representatives for two parliamentary rounds, but debate on it has not concluded and it was not passed into law.
Before going into details, let me point out that the bill was presented by the government to the House of Representatives’ Housing and Facilities Committee in mid-2019. The committee approved it and pointed out that the objective of the bill was not about favouring the benefit of a specific sector of the community over another, which would amount to discrimination categorically banned by the Constitution, but about achieving public benefit. Yet parliament adjourned for is summer recess that year without concluding debate on the bill which was then moved to the following round amid a busy legislative agenda. But again, amendment of the old rental law for non-residential housing units never saw light as the final round of the last parliamentary session ended earlier this month.
We are closely following news of the newly formed House, in anticipation of announcement of its legislative agenda. This should include bills the debate of which was not concluded by the previous House, or new bills referred by government. But let me remind that the bill for amending the old rental law for non-residential housing units is of supreme importance, since it regains justice long lost in Egypt’s real estate market, concerning the relationship between tenants and landlords. I am even hopeful, that once this law is passed, another law concerning the rentals of old residential housing units would follow. In fact, the rental values for old residential housing units have been frozen for more than seven decades, and this has resulted in entrenching injustice in the tenant-landlord relationship. In the 1960s, 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, who were then regarded as less privileged than landlords, but it practically turned 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 result over some 70 years has been a disastrous decline in the value of Egypt’s real estate wealth, and grave negligence in the maintenance and facilities of buildings that, not surprisingly, were ignored.
Back to the bill for amending the old law for non-residential housing units which is quite pressing, especially in that it restores absent justice. 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.
It is worth mentioning that 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.
Some may wonder why the need for the transitional period that the bill suggests, as long as the greater good is to restore justice and resorting to the market laws of supply and demand? The answer is that the transitional period—in this case five years—would prevent the occurrence of a sudden shock to rental values, especially that the increase in rental values will of course reflect on the cost of providing the products and services that the units whose rental values would have increased, provide. Accordingly, the end user prices of these commodities or service will definitely increase. This way the market would phase out the old rental values and move smoothly to recapture the eternal market law of supply and demand.
On the other hand, regarding the delay in passing the law, I say that in every cloud there is a silver lining. We are commencing this legislative session with a bicameral parliament—House of Representatives and Senate; this allows for a wider handling of the law, and opens the door for the addition of more versatile thoughts and experiences that would definitely serve the objectives of the law.
15 January 2021