Cairo (APD) - The first year of mortgage finance in Egypt has produced some encouraging developments but experts say that the country's new mortgage finance law could not cure all problems on the housing market. High interest rates on housing loans - currently about 14% - remain a main obstacle to growth in the mortgage market.
Since Egypt's mortgage law came into effect in late 2004, the cumulative value of mortgage loans reached LE 202 million by the end of September 2005, according to figures released this month by the Mortgage Finance Authority. The Mortgage Finance Authority is the real estate regulation arm at the ministry of investment in Cairo.
The Egyptian parliament had passed the mortgage law in 2001 with the aim of alleviating the housing finance situation especially for low and middle income earners. After it finally went into effect last year, the law allowed banks and mortgage finance companies to provide subsidized loans for "investment in the purchase, building, repair, or improvement of houses, administrative units, service installations and buildings of stores appropriated for commercial activity."
Prior to implementation of the law, most low-income citizens had faced insurmountable barriers in purchasing apartments, because of a complete lack of financial tools to buy real estate without having to pay cash upfront.
The data provided by the Mortgage Finance Authority did not detail how many individuals or families had benefited from the loans over the past year. The agency said, however, that the loans had been provided by two mortgage firms and three banks.
The two mortgage firms, Al-Taamir and Egyptian Housing Finance Company, were established in 2004 and have been involved in projects with the New Urban Societies Authority, Egypt's urban development agency, to partially finance the acquisition of new housing. Loans issued by the two companies were worth a total of LE 82.9 million by end of September.
According to figures from the Central Bank of Egypt (CBE), bank mortgage loans at a value of LE 119 million by the end of September had been provided by the National Bank of Egypt, Egyptian Arab Land Bank and National Societe Generale Bank.
The Egyptian Arab Land Bank had announced early this year that it was preparing for its first securitization transaction for an amount of LE500 million to be used for new mortgage loans.
"Anyone can apply for mortgage financing as there various incentives to meet many people's financial abilities. The borrowers can repay the loan over 20 or 30 years and the monthly installments would not exceed 25 to 40% of the borrower's salary," a senior officer at Egyptian Arab Land Bank told APD.
The lending regulations set an annual income line of LE 9,000 for individuals or LE 12,000 for households ($1,550 and $2100). Borrowers with an annual income above those margins are required to repay their loans over 20 years with monthly installments not exceeding 40% of their incomes.
Income earners whose annual wages are below the LE 9,000 / LE 12,000 barrier may qualify for special 30-year mortgage terms with monthly installments equaling 25% of their incomes.
Apartment prices at the lower end of the housing market in Egypt's population centers start at less than $8,000 and typically range to around $40,000.
More than 16% of Egypt's population was living below the poverty line in 2000, according to five-year old U.S. estimates. By latest estimates, the total population exceeded 77 million people in mid 2005.
Under a guarantee from government's Guarantee and Subsidy Fund (GSF), the fund will offer low-income borrowers an upfront cash subsidy of 15% in the price of the housing unit for an amount of up to 10,000 LE.
However, the interest rates for mortgage finance are high, especially in view of the long-term nature of the loans. Under the law, the interest rate on the loan is calculated by adding the official CBE-announced loan and discount interest rates valid at the time when the borrower qualifies for the loan.
"For instance, the interest rate would be the sum of the CBE's prime lending rate, which currently stands at 10% and our mortgage funding rate of 4% annually. This makes the interest rate 14%," explained the official at Egyptian Arab Land Bank
Many participants in the real estate market believe the 14% interest rate is too high for many low-income Egyptians. "With 14% interest and with repayment over 20 years, the borrower will end up paying almost three times the actual price of the apartment in 20 years," explained Osama El-Badry, president of al-Shorook City Investors' Association.
Another problem for many housing loan applicants is the registration of properties, which by law is a prerequisite in qualifying for mortgage finance. But many home owners, wanting to avoid the high cost of registration, do not register their properties. Market participants believe that only 15% of real estate in Egypt is registered.
Last March, the government reduced registration fees from 12% to 3% of a property's value, in an attempt to encourage home owners to register their properties.
"However, many properties remain unregistered, which is a major obstacle for those who want to benefit from the mortgage loans," explained El-Badry. [TS]
By Eman Wahby, APD Staff Writer in Cairo
APD (Arab Press Digest) 2005
