Home loan availability is gradually broadening

Mortgages on property of all kinds have been available in Egypt for the past 13 years since the relevant law, No. 148, was introduced in August 2001. Yet only recently have there been moves to provide financing for home-buyers seeking to repay their loans over longer periods of up to 20 years. It is estimated that as many as two-thirds of individual home purchases are paid for upfront.

Khaled Hatem Younes, general manager of operations at Sakan Finance, told OBG, “Around 65% of all second-hand properties are bought for cash. In many cases there is still no proper understanding of the market and the effect of inflation on increasing the value of property.” Without taking purchase price rises into account, it appeared to some that paying, say, 14.5% interest on a 10-year loan was simply doubling the property’s cost. “Even among some people who have mortgages there is a habit of saving lump sums to use to reduce the size of the mortgage, or even paying it off early altogether, due to the fear of the long-term commitment,” Younes said.

Foreign Capital Allowed

Whether they are provided through developers, banks or mortgage companies, home loans have until now been mainly directed at the upper and middle classes. Although theoretically not necessary, a change in the law in July 2014 should, in practice, extend mortgage facilities to a much wider range of people, including those who are in the market for social housing.

President Abdel Fattah El Sisi issued an amendment to Law No. 148 in July 2014 allowing, for the first time, companies with foreign capital to provide mortgages. The change puts those firms on the same legal footing as companies with Egyptian capital, by making them exempt from Article 1 of the mortgage law, which deals with non-Egyptian real estate and land space. Mortgages are regulated by the Egyptian Financial Supervisory Authority, which lays down general policies, grants licences to mortgage finance firms and sets the financial reporting standards.

Financing

Ayman Tolba, the chairman and CEO of Leena Real Estate, told OBG, “There are payment plans, but these sometimes require large deposits and are limited to five or 10 years. The government must make mortgages more attractive for developers through regulation changes, otherwise I do not see them becoming a trend.”

His concerns about current home loan practices were shared by Basil Ramzy, chief development officer for Egyptian real estate development firm SODIC. “It is very difficult to imagine that the mortgage market can grow when financial institutions are not able to make long-term borrowings in Egyptian pounds, so how can they lend long term?” he said.

Mohamed El Banany, vice-president of business development in Egypt for Coldwell Banker, could see at least one unintended benefit of an under-developed mortgage industry. “The global recession in 2008 didn’t really affect the Egyptian real estate market because it is more a cash market, as there is no efficient mortgage system,” he told OBG. “Real estate is in the culture but mortgages are not.”

Branching Out

Younes said that progress is being made. Sakan’s core business is offering mortgages to individuals for residential or business property. However, it is also in the market to take over entire loan portfolios from developers and convert them into mortgages. Sakan’s mortgage norm is a 20% deposit with a maximum loan of 80% repayable over up to 18 years. The average for loans is around $50,000, with market interest rates of 14.5-17%.

The image of mortgage finance has suffered in the past decade from perceptions that property registration issues and an untried system of foreclosure made it a risky business. For Younes, this thinking is outdated. “We need the land to be registered but not necessarily the housing unit itself,” he said. “In the two cases where we did need to foreclose, the system was costly but worked, and we resold the properties soon after proceedings were concluded.”