The Egyptian market for mortgages remains largely untapped

Egypt: Mortgages for the Masses
23 May 2007

Despite the construction boom that has seen 270,000 housing units being built each year, the high demand from the country\’s rapidly expanding population has forced prices up. As a result, an estimated 60% of Egyptians lack the financial means to buy a home.

However, the situation is set to improve for aspiring homeowners from the middle and lower income brackets. Recently, construction companies Orascom Construction and Six October for Development and Investment Company (SODIC) have defied fears that the focus on luxury apartments and villas was leading to a lack of affordable housing. SODIC announced plans to develop mid-range houses costing about $145,000, while Orascom has gone further by targeting lower-middle income customers.

It was Orascom\’s need to provide home payment schemes for these customers that led it to establish a subsidiary mortgage finance company, Tamweel. Sameh el Torgoman, Tamweel\’s chairman, told OBG, Our aim is to work with developers to provide affordable payment options [...] while at the same time providing houses that exceed expectations in terms of standard of living.

In an attempt to address the shortage of funding in the housing market, the central banks and 24 other private and public financial institutions have worked together to create the Egyptian Mortgage Refinance Company (EMRC). On May 17, Mahmoud Mohieldin, the minister of investment, announced the World Bank had given the company a $38m loan.

Even with these efforts, the Egyptian mortgage sector is young and underdeveloped. It lacks an infrastructure for foreclosures while costly and lengthy property registration procedures have hampered growth.

Property registration is optional except for those taking out a mortgage. Mohammed Abdalla, president of Coldwell Banker Middle East, told OBG that in the past high fees and an estimated processing time of 149 days for a deed application acted as disincentives for property registration.

Nevertheless, Abdalla said the situation has improved in the last year saying, The government decision to introduce a flat fee of $90 to $360 in place of the previous fee of three percent of housing value was better than we had even hoped for. While the logistics of registration are still complicated, the processing time is coming down.

On May 13, Mohieldin opened the first Euromoney Egypt Housing Finance Conference in Cairo. The conference, with participants including a range of politicians, business leaders and international experts, demonstrated the commitment of the Egyptian government and banks to tackle the issue. It also highlighted just how far the country has to go before mortgages can become common practice in Egypt.

In the last two years, three mortgage finance companies have begun operations in Egypt and three more are slated to receive licences in the next two years. Mohieldin told the conference that over the last two or three years, 1400 contracts had been signed by mortgage finance companies. Osama Saleh, chairman of the Mortgage Finance Authority (MFA), which oversees the mortgage law passed in 2001, told OBG, At the moment, total lending is slightly above $178m. Forty percent of this figure comes from mortgage finance companies and 60% from banks. Meanwhile, 70% of the mortgages are for newly constructed houses, especially in the satellite towns around Cairo. Mohieldin said the entrance of more mortgage finance companies would lead to more competitive rates for consumers. Housing finance is just getting started in Egypt, he said.

Saleh said he is confident that recent improvements in the foreclosure process will make banks more willing to issue mortgages. Saleh said, Since 2006 the MFA has trained and licensed 28 legal agents who are responsible for foreclosure proceedings. Saleh also said he believes that the establishment of the EMRC will have a significant impact on the willingness of banks to issue mortgages. The EMRC will be responsible for refinancing the banks and companies against their portfolios for a period of up to 25 years.

Initial interest in the MRA has been high. Saleh told OBG, We have been surprised by the public interest. In the first six months since their establishment our call centre received over 60,000 phone calls and our internet site had over 100,000 visitors. However, Saleh accepts, a lot of work needs to be done to educate the Egyptian population about the advantages and possibilities of homeownership.

Abdalla said mortgage finance development in Egypt faces significant cultural obstacles. Unlike US citizens, Egyptians are not used to a credit society. One of our important tasks is to increase the understanding that it\’s okay to borrow.

Tamweel\’s El Torgoman agreed but said he believes that the registration and ownership of property can help change this attitude and mortgages can help turn Egypt into a credit society and steer the country away from the informal economy. I am confident that these cultural obstacles can be overcome and Egyptians will come to understand the importance of mortgages.