Mortgage market targets LE 10 bln by 2013
By Annelle Sheline / Daily News Egypt
First Published: February 3, 2010

CAIRO: If the Mortgage Finance Fund can reach their goal, Egypt’s mortgage market will jump from LE 4 billion to LE 10 billion in the next three years, MENA reported.

Iman Ismail, managing director and CEO of the Egyptian Mortgage Refinance Company, the first mortgage liquidity company in Egypt, affirmed that the target of LE 10 billion “not unreasonable.”

She included the caveat, however, that more efficient mortgage finance procedures must be signed into law, adding that simplified legislation has been approved by the cabinet and will be submitted to parliament this year.

“Currently, the [mortgage finance] process takes six months and seven steps. We want it to go down to less than a month and three steps,” she explained.

As yet, mortgages represent only 1 percent of Egypt’s GDP, as compared to 50 percent in Cyprus and 80 percent in the UK, according to Reuters.

Aside from complicated registration procedures, the market is relatively immature. The Mortgage Finance Authority (MFA) was established in 2001 to implement Law 148/2001 and regulate mortgage finance and licensing. The intervening decade has seen some development, including the lowering of registration fees in 2003 and 2004. In 2009 the Egyptian Financial Services Authority (EFSA) took over mortgage regulation from the Mortgage Finance Authority.

Bureaucratic juggling aside, Ismail believes part of the hindrance is that the possibility of obtaining a mortgage is not well known nor understood by most Egyptians. She believes public information campaigns would be useful in order to inform people that owning property — currently only 30 percent of the population — is a greater possibility than before.

Ismail explains that the new property tax, while billing only the highest echelons of society, helps to increase awareness of registering property, a necessary step in building a mortgage-friendly culture.

Furthermore, some Egyptians oppose the practice of charging interest on mortgages un-Islamic. Sharia compliant home finance offered by the likes of a Talaat Moustatfa Group subsidiary circumvent this concern.

The lack of mortgage finance in bank balance sheets has also stunted the growth of the mortgage market, although Ismail sees this as an opportunity.

When it became clear that an over leveraged secondary mortgage market in the US and UK acted as a catalyst in the financial crisis and subsequent global economic slowdown, many in Egypt heaved a sigh of relief that Egypt’s mortgage market had not yet reached a level of complexity that might have exposed it to the same problems.

Ismail, however, offers assurance that even once the Egyptian mortgage market reaches maturity, and develops a secondary mortgage market in which banks sell the mortgages they hold, Egyptian mortgages will not expose the financial sector to similar risk.

“The issue [of anxiety] is a lack of understanding. The financial crisis… was not the result of mortgage finance. It was the result of arrangements that made no sense. …Liar mortgages, or mortgages available in the US that do not require the applicant to state or provide proof of their earnings… Mortgages leveraged at more than 100 percent, then rated triple A by a bank… [In Egypt] there are very strict rules. Banks aren’t allowed to issue mortgages unless it will constitute less than 40 percent of [the applicant’s] income, they require satisfactory documentation of income…. You can’t even make comparisons.”

With Egypt’s swelling population and very real demand for housing, the Egyptian real estate market is looking more attractive to regional investors burned by Dubai’s artificially inflated real estate boom and December’s near crash.

Although the future looks promising, Ismail warns, “mortgages will not solve the housing crisis.” Although mortgage finance will bring more property within the reach of low and middle income populations, mortgage finance is not intended to address the needs of those who simply cannot afford housing.

“This is about affordability…what it does is allow an individual to leverage the cash they have. They could have afforded ‘X’, now they can afford ‘X’ times three… If you save well and have a regular income, you can benefit.”

Ismail mentioned government programs designed for the poor. However, other than the low income housing developments currently underway from Orascom Housing and Palm Hills Development, which have received support from the Ministry of Housing, the government has yet to make significant efforts to end Egypt’s housing crisis.