By Noha Abdel Bary
Despite the housing boom in Egypt, and the myriad payment options that have recently become available to buyers, mortgages have nonetheless maintained a limited popularity, despite being widespread in other parallel markets internationally. Aiming to tackle this issue, and to moreover bridge the housing gap, the Central Bank of Egypt (CBE) launched its mortgage financing initiative in 2014, aiming to provide EGP 10 billion to banks to provide mortgage loans to homebuyers.
The initiative was forestalled for a period of time, but picked up again last April when banks withdrew EGP 1 billion of the allocated EGP 10 billion to begin loaning to low- and middle-income homebuyers. The EGP 10 billion will be loaned out to local banks by the CBE at low interest rates, with a 20-year repayment period. In turn, mortgage loans will be provided to low- and middle-income buyers with a 7% and 8% interest rate respectively. Mortgage loans are defined as loans in which the purchased house is put up as collateral for the loan, wherein a buyer who defaults on a loan is subject to having his/her house repossessed.
“Egypt is an equities market where mortgage is a developing field, however it still is considered to be inadequate and with the initiative launched by the CBE, financing mortgages provides home seekers with a chance to build their homes,” the Chairman of the Egyptian Financial Supervisory Authority (EFSA), Sherif S. Samy, told Daily News Egypt in an interview.
The Mortgage Finance Fund, a subsidiary of the CBE, regulates the entire mortgage scheme in Egypt.
In February 2016, new amendments were introduced to CBE’s initiative. Under the new agreements, low-income individuals earning less than EGP 1,400 will be qualified for a loan at an interest rate of 5% instead of 7%. Down payments have been reduced to EGP 12,000 instead of EGP 15,000, with governments providing an incentive to banks to finance income brackets that may have difficulty obtaining proof of income through insurance policies.
Other than banks, there are numerous firms in Egypt specializing in finance mortgage loans. A few examples of mortgage firms include the Egyptian Housing Finance Company (EHFC), Tamweel Mortgage Finance, Sakan Finance, Al Ahly Mortgage Finance, Taamir Mortgage Company, Arab African International Mortgage Finance, Egyptian Mortgage Refinance Company, Al Naeem Mortgage Finance Company, Amlak for Real Estate, among others.
The Egyptian Financial Supervisory Authority has provided the Islamic banks with regulations under mortgage financing. As a result Faisal Islamic Bank assigned EGP 200 million for individuals who comply with low and middle-incomes.
Islamic mortgage is believed to develop and sustain applicable Islamic laws, regulations and principles to financial transactions. Unlike a traditional mortgage system where the money borrower is given a certain amount, which is then repaid with interest, Islamic mortgage is based upon the Islamic funding principles of a co-ownership and leasing, according to Al Rayan Bank.
The Investment Benefits of Mortgages
Property Mortgage in Egypt has opened new segments of investment, a new scheme of property financing is to reflect on the rapidly expanding Egyptian markets, such as the real estate market.
There are always two sides to every story and Egyptians are considering properties to be a way of guaranteed and sound investment. The value of the Egyptian pound is declining and where to invest the money and which construction projects and units to focus on is a fundamental part of the process of property mortgage in Egypt. The value of the currency is diminishing against a plethora of real estate property and striking the balance is challenging. The benefit of using the mortgage system to finance a property lies in investing in current investments against an inevitable increase in prices of real estate properties by a minimum of 15% increase annually; Ayman Sami, Country Head of Jones Lang Lasalle (JLL), stated that annually a 5% to 15% is added to residential units and properties. While currency depreciation is not a novice concept, the best method of investing the money available needs studying.
Following the launch of the property mortgage initiative, real estate projects have taken leads and have topped lists of news agencies and news announcements. Other benefits for using property mortgage lie in building and sustaining consumers’ confidence, which would be attained through CBE’s system regulations.
Real estate is an embodiment of profit making and a safe haven; the prices keep rising and the value of the Egyptian currency keeps decreasing, and so investing now is the best solution to an economic rise. The majority of investors in Egypt favor real estate investments compared to investments in other liquid assets such as shares, gold, or bank certificates, said Ahmed Al Masoudi, the CEO of AqarMap, in an interview with Daily News Egypt.
“The investment culture in the domestic market classifies real estate and land investments as the safest investment sectors nowadays” as Tarek Shoukry, Chairman of Arabia Group puts it. Shoukry posited a rather important claim that the real estate industry is on the rise and is guaranteed to not decline and so using the money to invest in houses instead of safe boxes at banks is the safest type of investment in Egypt today. Compared to the US, hardly any hard transactions take place, cards are being used for any payments and mortgages are being invested in on every given chance, while in Egypt no one uses mortgages, and the CBE’s initiative would be utilized to pump money for investment purposes and cash would only be used in the form of buildings and houses and not for transaction purposes.
There is always room to invest, however, finding the right opportunity in the right moment is an integral opportunity to grasp and the abovementioned lists of firms to invest in and types of mortgages listed would ease the process of committing to a life-long asset. The CBE’s specific regulations of how much money an individual can borrow depending on their income level ensures a smooth repayment system of how much money individuals can eventually pay back which guarantees an efficient overall system. From an economical point of view, pertaining to certain property mortgage percentages would reduce the burden on banks, and therefore, boost the credibility of customers and this would achieve a win-win system.