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More banks eyeing mortgage finance industry

Despite the downturn in the mortgage market in Egypt due to the global financial crisis, many observers believe that the fledgling sector is catching up with the country's growing real estate market.

The positive prospects have encouraged many banks, such as Credit Agricole Egypt , to expand its business in the Egyptian house financing sector. The global banking group has recently increased its share in the Egyptian Housing Finance Company ( EHFC ), one of Egypt's leading house mortgage companies, to 99.98 percent.     

On Dec. 21, Credit Agricole Egypt declared that it had fully acquired EHFC after receiving the approval of the market regulator.

"We believe that this investment will enhance our revenues as well as our shareholders' value," said Henri Guillemin, managing director of Credit Agricole Egypt , in a statement.

The global banking group's plan to diversify its lines of business and to expand into new economic sectors goes back to a few years ago. In 2006, Credit Agricole Egypt increased its stake in EHFC from 40 percent to 50 percent by buying the Bank of Alexandria's stake.

The successful deal has enabled Credit Agricole Egypt to purchase the shares of the International Finance Corporation ( IFC ), the Organization of the Petroleum Exporting Countries ( OPEC ) and the Housing Development Finance Corporation LTD (HDFC).

With a capital of LE 50 million, EHFC was established in 2004 with the purpose of offering Egyptians loans to purchase real estate as well as developing the housing sector in Egypt. According to Hala Bassiouni, EHFC 's managing director, the company's board of directors has recently approved to double its capital. 

Mamdouh Al-Waly, deputy editor-in-chief of Al-Ahram for economic affairs, said that the acquisition will benefit both sides.

"Credit Agricole will definitely help EHFC with funding, and in return the company's successful business will boost the bank's revenues and share price," he said.

The last few years witnessed much enthusiasm about the growth prospects of the mortgage industry in Egypt. In 2008, Investment Minister Mahmoud Mohieldin announced that mortgage finance in Egypt was growing at 32 percent per year, expecting that the industry can double in size by the end of June 2009.

The untapped market attracted much foreign investment to a country that is still facing many housing problems.

However, the property mortgage market in Egypt, according to some views, has performed poorly since the end of 2008 due to the global economic downturn.

Yet, many observers believe that the newly introduced industry is picking up, attaching little importance to the impact of the global downturn.

"While the local real estate sector has encountered periods of stagnation, it is foreseen to prosper significantly," Bassiouni said in a statement.

Al-Waly believes that the global economic crisis has had a minimal effect on the Egyptian real estate mortgage market because of its limited size.

Around seven companies and 14 banks are the main players in the real estate mortgage market in Egypt. But the booming sector is capable of attracting more investments. 

Notably, in 2008, the Commercial International Bank (CIB), Egypt's largest bank by market value, announced that it had received a loan of LE 1.3 billion from the US government to enhance its house mortgage business.

Also, in September 2009, the World Bank agreed to support Egypt's Affordable Mortgage Finance Program with a loan of $300 million.

Although there is enough liquidity in the Egyptian house mortgage market, it is still facing many challenges.

"Egypt's mortgage sector is hit by high interest rates as well as red tape," Al-Waly told Daily News Egypt. He argues that the tough conditions imposed by lenders do not allow the limited income segment to benefit from the growing house mortgage business.  

Although the government is encouraging both lenders and borrowers by amending the law, many observers argue that in a country where only around 10 percent of citizens have bank accounts, the house financing industry in Egypt still has a long way to go.

In 2009, the government announced plans to amend its mortgage finance law, changing the mortgage percentage of total income, facilitating access to funding particularly to youth.

According to the original law, the percentage of the mortgage shouldn't exceed 25 percent of income, and the amendments aimed to raise that to between 30 and 33 percent, while maintaining lower risk levels for mortgages.

By Dina Abdel-Mageed

© Daily News Egypt 2009