EFSA Issues New Decisions on Real E

The Board of Directors of the Egyptian Financial Supervisory Authority (“EFSA”) has issued two decisions recently regulating the mortgage finance market, namely the Board of Directors’ decision with regards to the registration criteria of real estate valuation companies ("Registration Criteria of Valuation Companies Decision"),[1] and the decision with respect to the registration of non-Egyptians in EFSA’s real estate valuation experts table ("Registration Criteria of Non-Egyptians Decision").[2]

Background

The two decisions have been enacted in accordance with the amendments to the Executive Regulations of the Mortgage Finance Law published in April 2015, and with EFSA’s decision regarding the real estate valuation criteria in June 2015. The Executive Regulations amendments, which were issued on the basis of EFSA’s recommendations,[3] were characterized by their wide scope and their attempt to resolve many of the mortgage finance problems at once (See the May 2015 Issue of the Egypt Legal Update). One of the important aspects of these amendments was that they also regulated the complementary activities of the real estate valuation cycle. Mortgage finance is not just a typical financing provided by a company to a borrower, but a set of multiple and complex legal relationships that involves many other parties. Whereas both the Micro-Finance Law and its Regulations have mentioned these activities since their enactment, the 2015 amendments added important provisions and went a step further by defining and determining the responsibility of valuation experts, mortgage brokers, and real-estate brokers, and how they are registered with EFSA. With respect to property valuation in particular, the new Executive Regulations tasked EFSA with determining the valuation standards. These standards used to be set in the Executive Regulations themselves, which made it more difficult to amend and rectify. Two months following the issuance of the April 2015 amendments to the Executive Regulations, EFSA issued a decision regarding real estate valuation standards,[4] in which it developed the accounting basics and standards that are binding to the real estate valuation experts when determining the value of any property in the context of the Mortgage Law or in any other case where the law requires the valuation to be carried out by an expert. Thus, these two new decisions can be considered as complementary to EFSA’s decision regarding the standards; having clarified the standards which need to be followed during valuation, it is imperative to define the persons who are allowed to undertake these activities.

Registration Criteria of Valuation Companies

The Registration Criteria of Valuation Companies Decision regulates the registration of companies as real estate valuation experts for the first time. Where valuation experts were limited only to individuals in the past, the enactment of the Executive Regulations amendments in April 2015 allowed the licensing of real estate valuation companies. The Amendments redefined the real estate valuation expert in Article 38 as "all natural or legal person that undertake property valuation", replacing the previous Article which was limited only to natural persons, i.e. individuals. The Amendments had also included some binding standards and conditions that need to be met by any real estate valuation company, namely:

• the company must take the form of a joint stock company that includes real estate valuation among its activities;
• it should not have any bankruptcy judgments issued against it;
• the managing director or anyone that undertakes any valuation or real-estate brokerage activities through the company must be registered in EFSA;
• a person who undertakes valuation activities in the company must meet all the criteria and conditions set for the licensing of individual real estate experts.

Although the Executive Regulations had set out some of the criteria that need to be met, they left the responsibility of setting the detailed standards to EFSA, which led to the issuance of this decision. The decision regulating the registration criteria of valuation companies added some additional criteria, including that the board of directors of these companies must have at least one Egyptian member. In addition, the company must appoint at least two valuation experts, one of which has to be Egyptian. The decision also specified the required documents that the company must submit in order to fulfil its registration.

Registration Criteria of Non-Egyptians

The Executive Regulations also mandated EFSA with determining the registration criteria of non-Egyptians as long as they do not contradict the criteria set for natural persons (individuals) in general. The Executive Regulations stipulated that the person in question must have certain appropriate scientific and professional expertise and has to pass a certain test adopted by EFSA. In addition, a real estate valuation expert may not have had a previous criminal conviction. Moreover, the Registration Criteria of Non-Egyptians Decision has set additional standards such as requiring a non-Egyptian applicant to be a registered valuation expert in the country he has gained his experience in, that such experience may not be less than 10 years, and that it must be gained in a country with an advanced professional valuation practice.

Conclusion

The two decisions regulating the real estate valuation criteria are clear evidence of EFSA’s interest in the complementary activities of the mortgage finance. While these decisions did not diverge significantly from the Executive Regulations, the mere fact that they have been issued provides some clarity and ends the state of anticipation which was set after the Executive Regulations had determined that EFSA will issue such standards and requirements. The decisions also set out the documents required when making an application, thus complementing the legislative and regulatory framework for the registration of real estate valuation experts, who have currently reached 187 experts. [1] Egyptian Financial Supervisory Authority’s Decision No. 82/2016 regarding the registration and continuous registration of companies in the real estate valuation experts table, Egyptian Gazette, Issue No. 199, August 31, 2016. [2] Egyptian Financial Supervisory Authority’s Decision No. 81/2016 regarding the registration and continuous registration of non-Egyptians in the real estate valuation experts table, Egyptian Gazette, Issue No. 199, August 31, 2016. [3] Cabinet of Ministers’ Decision No. 2/2015 amending the Mortgage Finance Law No. 1/2001, Official Gazette, Issue No. 13 (bis) (b), April 1, 2015. [4] Egyptian Financial Supervisory Authority’s Decision No. 39/2015 regarding the Egyptian standards of real estate valuation, Egyptian Gazette, Issue No. 130 (cont.), 7 June 2015.