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Egyptian property market stalled over land sale probes

According to analysts it could take years for an outcome to legal challenges targeting companies such as Palm Hills and Talaat Moustafa which focused on high end property for Egypt's wealthy elite.

That may be too long for some investors who see value in the sector. Conflicting laws governing the sale of state land are at the heart of the legal wrangles, which have already led courts to nullify sales to Palm Hills and Egyptian Resorts. TMG's ownership of one of it's biggest projects is also at risk.

The crisis of confidence has infected the whole sector. Bulldozers and cranes on the desert outskirts of Egypt's sprawling capital lie idle as firms review sales outlooks and brace for potential investigations of their land holdings.

The challenges to state land date from before Mubarak's departure and gathered pace with the revolution, which channelled popular anger at officials who sold land for pennies in a country where most of the population struggles in poverty.

Land has been withdrawn from at least three firms and two former housing ministers are locked up in jail. The cases revolve around a 1998 law that stated that all state land must be sold via competitive bidding.

‘The biggest problem the state is facing now is the lack of clarity on the legal status of all of Egypt's land,’ said Samih Sawiris, chief executive of Orascom Development. ‘If this issue is not resolved, there will be no development in this country in any field,’ he added.

Analysts warn that new investment in the sector will be dampened by the protracted court battles, messy compensation schemes and international arbitration.

The value of land sold to many firms must be recalculated, compensation schemes thought up and some plots re-auctioned in a public bid, said Ahmed Mekky, a judge and vice chairman of a Cairo appeals court.

Practically every major project and major developer, both foreign and domestic, has come under public scrutiny on how their land was purchased. Only smaller firms with more focus on middle income housing look relatively safe.

Mubarak's cabinet sought to put legal battles to rest by promising to enact new laws designed to settle the uncertainty, but the uprising disrupted the plan before it was complete.

Industry experts are calling for quick and bold intervention, but worry the current government is unlikely to revamp the legal framework of Egypt's real estate sector, leaving that task to a new government that would take the reins after the September parliamentary elections.

‘We need a new law that will resolve all these deficiencies that have been left unattended before,’ said Judge Mohamed Hamed el-Gamal, a former head of the State Council, adding that the government should unilaterally review all its contracts before they are contested in courts. Meanwhile, swathes of the industry are condemned to legal limbo without that.

International real estate agent Coldwell Banker admitted that demand for property outside Cairo has declined but in the city the trend is reversed. According to the firm's Egypt president Mohamed Abdallah sales halved after the uprising before recovering to a 30% drop on the year to the middle of April.

‘I was expecting a number close to zero but real estate is a very good investment when things are not clear. There are fears of currency risks and the best way to hedge against currency hikes and inflation is real estate,’ he explained.

‘There are still domestic savings, there are still people who need homes, there are people who are worried about potential inflation and are looking for hedges,’ Maher Maksoud, chief executive officer of SODIC, told Reuters.

Optimists say Egyptian real estate will survive the turmoil because of pressure to provide housing for an overwhelmingly young population in a country where the lack of a home is seen as a major obstacle to marriage, giving bright long term prospects to firms able to steer through the industry headwinds.

‘If anyone wants to invest in this sector, they should look carefully at the balance sheet to see how long a company can keep going through this slowdown,’ said Harshjit Oza, a research analyst at Beltone Financial in Cairo.