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Money back guarantee for house buyers

Article - June 28, 2012
Up until the mid-1980s, real estate development in Algeria was under the sole jurisdiction of the state
All construction was a state monopoly – from land acquisition and project evaluation to environmental impact studies, building and delivery to the buyer. A law in 1986 changed this landscape, opening the door to the private sector and allowing it to participate in real estate projects and help raise the supply of housing in a country where demand vastly outstripped supply.

Seven years later, the law was modified and a new concept in Algerian real estate development was introduced: off-plan sales. Thanks to a high level of liquidity in the country, this scheme worked well in that buyers placed down payments on housing – as well as commercial – properties that were not yet built, thus providing the real estate developers with capital to fund their projects. Although this worked in the majority of cases, there were a few that fell through, leaving buyers in the lurch.

In the year 2000 the FGCMPI was established to counter these failures and safeguard buyers’ investments. FGCMPI, the French acronym for Mutual Guarantee Funds for Property Development, is a special fund with the mandate to cover any payments buyers make on an off-plan project should it never see the light of day. In addition, since a new law came into effect in 2011, the FGCMPI has a second mission, “as important as the first,” says Mouloud Dahel, General Director of the fund, which is: “Namely, the completion guarantee. This means that in case of failure on the developer’s side, the fund steps in on behalf of the buyer and subrogates itself to the failing developer to support the building work until its completion.” 

He adds, “As such, our role will no longer be restricted to the reimbursing of the buyers’ payments within the scope of off-plan sales, but will also be extended to the completion of building work, right up to the point where the keys are handed over.”

Buyers can rest assured, then, that their investments are safe if the real estate developer in charge of their future home is a member of FGCMPI.

When the fund began 12 years ago there were just 71 members; today there are more than 1,700. Not all developers are actively involved in projects at any given time, however. In fact, some 25,000 developers (of which 394 are foreigners in partnership with Algerian firms, as stipulated by law) are registered in the National Centre of Company Registration (CNRC), but not more than 10 per cent are currently active. Mr Dahel explains that many companies register as real estate developers in the happenstance that they acquire a property and one day decide to build commercially.

Becoming a member of the FGCMPI is no simple procedure, and only serious developers with all their paperwork in order may enter the fund. If an applicant does not hold the title for the land or they do not have a building permit, for example, they will be refused membership. On the other hand, if the FGCMPI deems the applicant to be a high-risk developer, this will be reflected in the membership fees charged, which vary according to several factors. It is these membership fees, in addition to subscriptions, entry fees and the guarantee fees, that comprise the FGCMPI’s funds, which today total 4 billion dinars (£32.8 million).

As of the first trimester of 2012, the FGCMPI has under guarantee 30,010 ‘free promotional’ houses (non-subsidised housing with no price limit) and 235,889 subsidised social houses, compared to 357 and 510, respectively, in 2000. In terms of guaranteed projects, the FGCMPI had just 10 when the fund began, and today there are 3,589 such projects.