A US loan will help low- and middle-income buyers purchase houses. Reem Leila unveils the new scheme The Commercial International Bank (CIB) announced on 28 July that mortgage financing has become easier for some home buyers. During a joint news conference with the US Embassy in Cairo and the US government agency Overseas Private Investment Corporation (OPIC), CIB told reporters that it has received a $250 million loan from OPIC to expand low- and middle-income mortgage lending in Egypt. This comes on the heels of the implementation of mortgage finance reforms which have made it easier to purchase property and obtain home loans. US Ambassador to Egypt Margaret Scobey attended the signing ceremony, and later stated the agreement provided a different type of service to Egyptians, who for a long time couldn't access the mortgage finance market. "It signifies a new direction for US-Egypt economic relations," Scobey noted. CIB Chairman and Managing Director Hisham Ezz El-Arab said the bank would allocate 80 per cent of the loan, namely $200 million, to other public lenders, including Housing and Development Bank and Egyptian Real Estate Bank, to help originate long-term mortgages to low- income home buyers. The remaining $50 million will go to CIB's mortgage finance portfolio which caters to middle-income home buyers. "This loan aims to pump enough liquidity to Egyptian banks to finance long-term mortgages," explained Ezz El-Arab, adding that mortgages will be 15-20 years long. "Low income loans will finance housing units with values of not more than LE110,000, while middle-income loans will finance units at the value of LE550,000 maximum, payable over 15-20 years." He further added that the interest rate will range between 12-14 per cent. According to regulations of the loan, home buyers need to pay an amount ranging between 10-15 per cent of the unit's value as a downpayment. "The household debt to Gross Domestic Product [GDP] ratio in Egypt is less than 10 per cent," Ezz El-Arab told media representatives. "The opportunity here is enormous to grow the wealth of the middle class." Changes to property laws, including reducing fees for registering property and clarifying foreclosure laws, have encouraged more mortgage lending by banks and the establishment of mortgage finance companies for the first time in Egypt, the most populous Arab country. Economic growth of more than seven per cent per year, the country's fastest in more than two decades, is allowing more people to buy houses. According to Robert Mosbacher, OPIC's president and CEO, in the US, home ownership is called the American dream. At the signing ceremony, Mosbacher felt that it is, in fact, a universal dream which touches an individual's life directly and is a source of personal dignity. "A 15-20 year long mortgage product will provide shelter as well as improve the quality of the financial sector," he reasoned, "by making them better lenders not only to higher-income groups but also to low- and middle- income groups." Mosbacher pointed out that OPIC has so far poured in $177 billion worth of investments which helped developing countries generate over $13 billion in host-government revenues. "We aggressively pursue mortgage lending because it requires one to have his own house or shelter to be able to put food on the table," he asserted. Besides CIB's mortgage lending agreement, OPIC has invested $300 million in several projects in Egypt and $2 billion in projects across the Middle East. Mosbacher cited the government's recent reforms to boost mortgage lending in Egypt, including reducing fees for registering property and clarifying foreclosure laws and establishing the Mortgage Finance Authority (MFA). "Egypt has taken serious steps to improve the legal framework for mortgage lending," he added. "Because of reforms implemented in Egypt, now is the time for mortgage finance. There is strong unmet demand for mortgage lending here, and we want to help the government address that gap." According to official figures, mortgage finance is growing at roughly 32 per cent per year. "The total size of mortgage finance now stands at LE2.6 billion, which represent around eight per cent of GDP," revealed MFA Chairman Osama Saleh, who expects the size of mortgage finance to double to some LE4 billion by year-end. According to Saleh, more mortgage lenders mean better pricing schemes because competition breeds better services. "We've also seen interest from some US and European companies which are now eyeing the Egyptian market, given the turbulence in international markets," he added. "Companies are now turning towards emerging markets which offer better opportunities than international ones. And given the size of demand in Egypt, coupled with stability of this demand, we see huge growth in both real estate and mortgage finance markets." Depending on their mortgage finance strategies, mortgage finance companies as well as banks in Egypt basically finance 40-90 per cent of a property's value. OPIC was established in 1971 to help US businesses invest overseas, foster economic development in emerging markets, and complement the private sector in managing risks associated with foreign direct investment. As stipulated by OPIC's eligibility criteria, CIB qualified for the loan because American ownership in the bank has a 30 per cent stake.
