Ministers approve new property tax law proposal, dramatically reducing rates

Ahmed A. Namatalla
4 Min Read

Legislation awaits final PA approval expected by end of January

CAIRO: The new property tax law, calling for a reduction in property taxes from 46 percent to 10 percent, is now one step from becoming a reality after obtaining Council of Ministers’ approval Wednesday.

The legislation, proposed by the Ministry of Finance (MOF) in late 2006, will now head to the People’s Assembly for a final vote widely viewed as ceremonial. Once ratified, the law will complete the second major commitment of MOF and the Ministry of Investment to reform property legislation.

“This is one of the measures the government took to spur activity in the real estate sector along with activating the Mortgage Finance Law, HC Brokerage Housing Analyst Nematallah Choucri told The Daily Star Egypt.

The new property tax law proposes a flat annual tax on all properties including the registered and unregistered limited-income housing communities. It does not, however, eliminate partial exemptions currently applicable to limited-income housing and all units with a rental value of less than LE 150 per month. More than 80 percent of properties in Egypt are unregistered, according to MOF figures.

Choucri said the new law, combined with efforts on the mortgage lending front, should pay off in increasing property registration. Already the mortgage law has succeeded in increasing mortgage lending to LE 1 billion at the end of 2006 with expectations for LE 4 billion by the end of 2007. The 2001 legislation had largely remained dormant due to high property registration fees, and high lending rates.

As of June 2005, total mortgage lending stood at LE 15.8 million when Minister of Investment Mahmoud Moheiddin launched a concerted effort to reform the system. Moheiddin helped push through legislation to lower property registration from 12 percent to 3 percent or a maximum of LE 2,000 and accelerated the establishment of three mortgage finance companies, which helped lower interest rates from the 18 percent to 20 percent range, to 13 percent.

In June 2006, lending reached LE 514 million, but high lending rates continued to draw criticism the law was not reaching its stated target: limited income groups.

Yes, mortgage rates are critically high but with the entrance of more companies and [the Egyptian Company for Mortgage Refinancing], competition is increasing and lenders will find a cheaper way to provide financing, Choucri said.

If ratified, the new property tax law is set to become the first of two major promised reforms for 2007 by MOF in 2006. A coordinated effort between MOF and the Ministries of Housing and Population and Investment was launched in the last half of 2006 to draft a new Unified Construction Law to reduce bureaucracy in the sector. A final draft is yet to be agreed upon, but all three entities have said presentation will be made to the PA during its current session.

Despite the government touting of the potential impact of the new property tax law, comparing in significance to the 2005-reformed income tax law, Choucri said its success will depend on its ability to impact other sectors.

“I don’t think it will have as strong an impact as the income tax law because it only affects [the real estate sector], she said. “But, of course, lifting the real estate sector can lift other important sectors such as construction materials.

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