Mortgage Finance Companies: The Savior of the Real Estate Sector

Mortgage Finance Companies: The Savior of the Real Estate Sector

Translation: Muhammad Khalid

Amid the present challenges facing the real estate sector in Egypt, everyone is betting on mortgage finance as an ideal solution to mitigate and face these challenges, which include the depreciation of the EGP against the USD, the increase in the prices of building materials, and the rising interest rate. Such challenges prompted developers to restructure their plans, and consider all available financing options to enhance their finances to be able to complete their projects.

Mortgage finance activity witnessed a remarkable performance during 2022, as mortgage finance companies granted EGP 13.4 bn to their clients throughout the year, compared to EGP 8.1 bn in provided in 2021, with a growth rate of 65.4%, according to a report by the Financial Regulatory Authority (FRA).

Mai Abdel Hamid, CEO of Social Housing and Mortgage Support Fund (SHMSF), says that banks and companies pumped EGP 55.52 bn into subsidized mortgage finance initiatives until the end of January 31st 2023, compared to EGP 54.47 bn in the previous month. She adds that 8 real estate finance companies are participating in mortgage finance initiatives for low-income people, and the total financing provided by companies recorded about EGP 2.33 bn until the end of January.

However, the current period still needs more funds to advance the real estate sector, as many developers and experts have appealed for the need to address the difficulties facing mortgage finance. In this report, Invest-Gate highlights the importance of mortgage finance companies in facing present challenges.

Government Support

Prime Minister Mostafa Madbouly stresses the need to put in place a set of measures aimed at promoting mortgage finance, which helps citizens buy residential units and thus support the real estate sector.

Madbouly directs for the formation of a committee consisting of Mohamed Farid, Chairman of the FRA, May Abdel Hamid, CEO of the SHMSF, and Rana Badawi, Sub-Governor of the Central Bank of Egypt for Regulations and Banking Supervision; to prepare an integrated program to promote mortgage finance.

The Role of Mortgage Finance Companies

For his part, Ayman Abdel Hameed, Vice Chairman and Managing Director of Al-Tameer Real Estate Finance Company (Al-Oula), tells Invest-Gate that mortgage finance companies have a major role in advancing the real estate sector, and have always been an effective solution to the crisis of high real estate prices. The system, Abdel Hameed adds, allows for the payment of units’ value in instalments over long terms, which eases the burden on customers and gives a real opportunity for young people and graduates to obtain turn-key housing units.

However, Abdel Hamid notes that given the high interest rate, the role of mortgage finance companies shrinks, as the cost of financing rises and imposes additional costs on customers.

Financing challenges

Abdel Hamid adds that mortgage finance in Egypt faces two real problems; the first is the increase in real estate prices, and the second is the increase in the interest rate. She mentions that real estate prices have increased by 50 to 60% in some locations. Moreover, the CEO of SHMSF, says that with each 1% increase in the interest rate, the cost increases for customers by between 6 to 10%.

Abdel Hamid demonstrates that costs rose by 8% in 2022, which constituted an additional burden on the client and led to shrinkage in mortgage finance recently. She notes that there are some legal challenges that need to be addressed.

For his part, Ayman Abdel Hameed, explains that there is no specific mechanism to revive mortgage finance, noting that some factors would promote the activities of the real estate sector, including reducing the interest rates and the increase in supply.

In a similar vein, Khaled Hatem, CEO of Arab African for Mortgage Finance, says that the rise in inflation is one of the biggest crises facing many sectors at the present time, including mortgage finance. He adds that inflation caused a significant increase in real estate prices as a result of the increase in the prices of building materials and the interest in instalments of lands allocated to developers.

Hatem explains that higher interest rates and real estate prices represent a challenge that not only impacts new customers of mortgage finance companies but also their existing customers, due to the increase in interest rates. He notes that the decrease in the purchasing power and financial solvency of customers, in light of the increased prices, reduces the demand for purchasing housing units, despite the increase in the supply in the market.

Mortgage Finance in the NAC

NAC is offering many investment opportunities, and there are many requests from real estate developers and some companies to be present in the city, but it requires more funds and the development of some procedures that would promote various projects.

In this regard, Abdel Hamid indicates that mortgage finance companies are fully prepared to finance individuals in the projects of the new capital, adding that Al-Oula is currently financing the purchase of some portfolios for developers in the NAC. He adds that his company aims to achieve EGP 1.6 bn in financing during 2023.

Financing Units Under Construction

With regard to financing projects under construction, Abdel Hamid states that real estate finance companies do not take risks with their financing, but in the event that there is a clear mechanism that regulates the relationship between the financier, the developer, and the customer, the companies will certainly do so.

On the other hand, Mohamed Samir, partner and a board member at Bayt Misr company for mortgage finance services, maintains that the FRA’s decision to approve the financing of units under construction will greatly revitalize the mortgage finance system and the real estate market.

Samir emphasizes that in light of the state and government’s movements towards projects under construction and the implementation of new and fourth-generation cities, such as NAC, it is necessary to activate the program for financing units under construction to solve the crisis of the cost of mortgage finance and popularize it.

Additionally, Samir remarks that most real estate development companies sell their units off-plan, pointing out that the number of units meeting the conditions of mortgage finance is small. Samir highlights that the number of units eligible for financing is currently only 2 mn, which is a great impediment to customers.


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