By Ahnie Litecky

Buying a home is an exciting and nerve-wracking experience that requires a lot of research and planning.  Will you buy a finished apartment? Two bedrooms or three? Garden, Nile, or city view? What about the neighbors and the surrounding community? Arguably the most important consideration is how you will finance your new home.  Making the right choice may mean saving a lot of money on the long term.  There are several home financing options available beyond using your own cash savings: individual financing through off-plan properties, bank lending, and mortgage financing. The right financing choice differs depending on individual needs of the homebuyer.

Cash, Installment, or Off-Plan Investments

Paying for an apartment with cash is a common practice in Egypt.  Many Egyptians view real estate as a good way to invest their savings, and putting money into an apartment can hedge against inflation and devaluation of the Egyptian pound.  However, many people do not have the cash necessary to purchase a home, so they need other options.

Off-plan investments involve buying property from developers before it is completed.  Off-plan investments are billed by developers as extremely good deals, since the sale price is much lower than what it will be after construction is completed.  According to Oxford Business Group, the average unit price for the six leading real estate developers in Egypt ranges from EGP 800,000 to EGP 2.5 million.  Typical installment terms for off-plan sales are a 15% to 20% down payment and then payments for five to six years.  Developers are keen to sell units as early as possible, often even before construction has started, in order to limit debt and obtain favorable loans from banks and investors.

When considering an off-plan purchase, do your research on the company.  Find out if the developer has completed other projects in the area.  Was work completed on time? Are customers happy?  If you decide to invest in an off-plan property, then consult an independent solicitor to examine the contract before you sign.  Also, purchase as early as possible, since prices rise quickly and the best units with the most resale value or rental income potential are usually snapped up first.

Before considering an off-plan purchase, carefully weigh the risks and potential rewards.  Ehab Elhatawy, Chairman of Lincom Real Estate Company, contends that off-plan properties are not a good investment because banks will not finance them.  Also, customers have no guarantee that the developer will complete a project.  However, Hany Genena, Head of Research at Pharos Holding, told Mada Masr last year that off-plan sales are a safer bet than taking a loan from a bank. The country’s strict bankruptcy laws could mean prison time if you default on loans, whereas if you fail to pay your installment to a developer “the worst that can happen is that they will take back the unit when you don’t pay installments for a few months, and after it’s re-sold they will give you back the money you already paid, so the fear of going to jail does not exist,” noted Genena.

Installment plans with a property owner are also a common practice and can be an option if you want to purchase a finished apartment and have some money to put as a down payment but not quite enough to cover the entire cost.  Sherine Adel, a real estate agent with Space Real Estate, mainly works with clients in New Cairo and Rehab City explains that when a client decides to purchase an apartment, villa, or land, they either pay cash or arrange for an installment plan with the owner.

For example, an apartment might cost EGP 1 million.   The owner then asks for an “over,” which Adel defines as an additional cost based on special features such as garden views, parking, which floor the apartment is on, decorations, or whether the apartment is already painted.  “Overs” may be in the range of EGP 100,000 to 200,000.  So the total cost of the apartment might now be EGP 1.2 million.  The owner agrees to a down payment of EGP 700,000, and requires the remaining balance of EGP 500,000 to be paid on monthly installments.  In Adel’s experience, most clients pay cash for their apartments, mainly because there are few installment plans available in Rehab City, where she conducts most of her business.

Bank Loans and Mortgages

There are a variety of home financing options available through banks.  To receive a bank loan you need to meet certain qualifications, such as salary requirements, proof of residence, and proof of employment, which can be found on bank websites or by visiting or calling a branch.

Many banks offer both mortgages and personal loans, but with differing loan amounts, repayment plans, and terms.  For example, Emirates NBD offers home loans of up to EGP 5 million and payment plans for up to 180 months.  Your monthly gross salary must be at least EGP 5,000 and you would need to provide various types of documentation such as permits, ownership contacts, and property registration.  Personal loans through the bank can amount to EGP 1 million with payment plans up to 36 months and require a minimum EGP 1,200 gross monthly salary.

Other banks offer multiple types of personal loans. You have several personal loan options through AlexBank, such as loans with salary transfers, with loans up to EGP 1 million and extended repayment plans of up to eight years.  The minimum salary is EGP 1000 for Cairo and Alexandria residents and EGP 700 for the rest of Egypt.  A loan with installment transfers of up to 750,000 can be paid back in up to eight years and requires a minimum salary of EGP 1,000.  There are also options for personal loans without salary or installment transfers and loans for pensioners through AlexBank.  The bank also offers home mortgages of up to EGP 5 million to finance up to 70% of the property value, with a flexible repayment period of up to 15 years.  Minimum salary for a home mortgage is EGP 2,500.

Bank Audi’s personal loans range from EGP 10,000 to EGP 1 million.  The company has special loan programs for club memberships, doctors and dentists, bankers, and self-employed people.  Bank Audi also offers home mortgage products from EGP 50,000 to EGP 5 million.  HSBC’s personal loans offer varying amounts and repayment plans depending on if you choose a salary/installment transfer, no salary installment transfer, are self-employed, or a doctor.  For instance, if you choose the salary/installment offer then you could borrow up to EGP 750,000 based on monthly income and length of service, and have up to 84 months to repay the loan.

Securing a home loan requires careful research.  If you decide to pursue bank financing Elhatawy has several recommendations. First, and most importantly, you need to know what the total value of the loan will be and how much you would pay on installment per month.  Second, check the interest rate and see how much extra you would pay on top of the loan amount.  Lastly, compare loans offered through different banks to see which has the best offer.

After choosing the bank you wish to ask for a loan, read up about eligibility and required documents.  Do not be afraid to ask questions if you are unsure about a requirement.  Make sure that you can provide all the necessary documentation for proof of income, residence, age, utility usage, or whatever other documents are required by the bank.  Some banks have restrictions on how you spend personal loans, so read all documents carefully.

A bank will not finance a home loan without ensuring that the property meets certain requirements, including registration with the government and approval for water and electricity counters.  According to Elhatawy, “If people come to the bank with these answers it is a plus.”

If you meet income requirements, then Elhatawy recommends taking out a loan through the Central Bank of Egypt (CBE) because the process has become increasingly easy.   In 2014, CBE launched a special initiative called the Mortgage Finance Fund to help Egyptians with low and average incomes purchase homes.  The Fund allocated EGP 10 billion to Egyptian banks that could then re-loan the money to qualified borrowers.  Banks can offer special deals to these borrowers such as low down payments, long-term financing, and no fees for opening accounts or early settlements.   Maximum annual income is EGP 42,000 per family and EGP 30,000 per individual.  The Fund will grant up to EGP 165,000 per apartment.

In late February, the CBE amended the Mortgage Finance initiative.  Under the changes, Egyptians who earn less than EGP 1,400 per month pay a discounted annual interest rate of 5% instead of 7%.  Also, the down payment amount was decreased to EGP 12,000.  There are other qualifications that can be found on bank websites that offer loans through the fund, such as the National Bank of Egypt, or the Mortgage Finance Fund website.

Taking out a mortgage from a mortgage financing company is another option.  Mortgage finance companies are a growing player in the home financing industry.  Today, there are multiple mortgage finance firms to choose from.  Before choosing a mortgage finance company, you should make sure that the company is licensed by the Egyptian Financial Supervisory Authority (EFSA).  A list is provided on the EFSA website, along with lots of tips on dealing with mortgage finance companies, brokers, and appraisers.  Mortgage finance firms require similar documentation and offer similar terms to loans through a bank.  For example, Tamweel Mortgage Finance offers repayment periods up to 20 years, and financing of up to 80% of property value.  Maximum loan size is determined by a percentage of your monthly income.

An Islamic mortgage, which can be arranged through companies like Abu Dhabi Islamic Bank Egypt or Faisal Islamic Bank of Egypt, allows you to purchase a property without paying interest.  The bank buys a property from the landlord and then sells the property to you at a higher price.

Foreigners who want to buy property in Egypt can rely on the above-mentioned tips as well.  If paying cash is not an option, then check on eligibility for mortgages and personal loans through a bank or mortgage company.  Foreigners can also work out equity release plans with banks in their home countries.  This type of plan allows homeowners to take cash from the equity built up in property they already own.

The Big Decision

Buying property in Egypt used to require large amounts of cash.  Although many people still rely on cash, those who do not have extensive savings can also realize their dreams of home ownership.  Egyptians now have multiple options available when choosing how to finance a home, and with these choices come the difficult task of making an informed decision.  Considerations such as the reason for purchasing a home, your current and foreseeable income, and long-term plans should all play a role in choosing how to finance your home.

If you are simply looking to make some money off an investment, and you have the necessary cash, then purchasing an off-plan property, although initially risky, could be a big money-maker if you re-sell after demand for units increases, or rent out the finished property and then re-sell within a few years.  Financing through a bank makes more sense if you plan to own your home for the long term, you have a stable income, and you can meet other requirements.  Taking out a loan or mortgage and then making the required payments helps you build good credit and improves your chance of receiving loans in the future.  If your income is low, then financing through the CBE mortgage initiative is preferred, since you would enjoy low interest rates and good repayment terms.  Think carefully and do your research because this choice could be one of the most crucial financial decisions that you ever make.