CAIRO: Egypt's booming real estate sector has proved to be a catalyst for the country's nascent property finance market, which has recently picked up speed after years of underperformance. Real estate and mortgage finance now enjoy a direct relationship, developing in conjunction to meet the long under-supplied property market in Egypt. The country's real estate sector is growing at an estimated rate of 15 percent annually, while the mortgage finance market constitutes around 7-8 percent of the country's GDP. Harboring on this development and the recent economic boom, real estate investments - largely coming from the Gulf - have exceeded $52 billion in more than 16 projects nationwide. Currently, the total size of mortgage finance in Egypt stands at more than LE 2 billion, through seven operating companies and around 14 banks. Although the mortgage finance law was passed in 2001, the industry only started gaining momentum in the past two years. "In light of ongoing hikes in prices of raw material and dwellings, mortgage finance has become the only answer to Egypt's housing problems, Osama Saleh, chairman of the Mortgage Finance Authority, told Daily News Egypt. The Mortgage Finance Authority expects the size of mortgage finance to double to LE 4 billion by June 2009 and the number of specialized companies to reach 10 by December. The MFA oversees proper implementation of the mortgage law passed in 2001 and acts as a supervisory body over mortgage finance companies in Egypt. Laying the foundation for the mortgage finance industry has been the biggest challenge. In 2004, property registration laws were amended to allow land to serve as collateral for loans. Land registration now takes three months to be processed and costs LE 2,000. Last month, the MFA announced the launch of i-Score, a credit bureau that helps banks and mortgage companies assess applicant's financial status and keep default rates low. Applicant's monthly installments are limited to a percentage of their incomes to ensure they will be able to make their payments in a timely manner. "I-Score could be a means of solving the availability of data problem, since companies will have information about clients and contact them directly, Menna El-Hefnawy, a real estate analyst at HC Securities and Brokerage, said. I-Score is expected to create an information bridge between clients and property finance providers, one of the many initiatives helping lure a growing number of mortgage finance companies to Egypt, Saleh said. There are now five mortgage companies operating locally: Egyptian Housing Finance Company, Al Taamir Mortgage, Al Tamweel, Amlak Finance and Real Estate Investment and Al Tayseer. Two more companies, the Dubai-based Tamweel and Saudi Arabia's Naeem Investments, were granted licenses by the MFA this year and are currently laying the groundwork to launch business operations. While it may seem that the rapid growth of the sector has triggered an influx of mortgage finance companies, the market is far from being saturated. "The market still has potential to grow and there is room for more competition, El-Hefnawy said. Payment plans vary, but companies and banks offer prospective homebuyers financing 40-90 percent of the property s value at an interest rate ranging between 12 percent and 14 percent. Mortgages have a comparative advantage over bank home loans because the down payment and monthly installments are less since borrowers are able to use the property as collateral. Mortgages repaid over 20 to 30 years, rather than 10 to 20 years for bank loans. Investment Minister Mahmoud Mohieldin predicts total lending to increase in Egypt through mortgage finance companies rather than banks. On the other hand, El-Hefnawy said, "People still can't differentiate between the services provided by banks and companies, awareness is low, but the fact is that the market share for banks is higher. Although a longer repayment plan translates into a higher sum, it does mean lower monthly installments, which caters to a large segment of society who want to buy a home but whose salaries cannot cover the payments on a short-term loan, a representative of National Société Générale Bank told Daily News Egypt. This growing segment includes young executives and professionals as well as newlyweds, who are now the target clients of banks such as NSGB and Commercial International Bank. "We offer them [employees] information and guide them through the application process, detailing the documents they need and [helping them decide] which scheme is best based on their salaries and assets, the bank representative said. Despite rigorous efforts to market loans and mortgages on offer, experts still believe that a major hindrance to the growth of property finance is the lack of awareness about the rules and procedures. "There is still a lack of awareness about mortgage finance services, we need better marketing tools, campaigns and ads to create this awareness, El-Hefnawy said. For their part, real estate companies are trying to fill the gap, because the more financing on offer, the more units they sell. "Yes, there is a lack of awareness, which is why we provide free advisory services to our clients who express an interest in mortgage finance, said Shahira Hamouda, client financial services director at SODIC. Around 10 to 15 percent of SODIC's buyers opt for the mortgage finance solution, she added, and "we try to provide our clients with all required information in order to identify the mortgage finance company that best suits their needs. More companies mean more competition, better interest rates and a variety of offers for consumers to choose from. However, mortgage finance interest rates still present an impediment to the lower income group. The market addresses around 20 to 25 percent of Egyptians, while the remaining 75 to 80 percent are overlooked, Hesham Talaat Mostafa said recently at a conference titled "Mortgage Finance: Challenges and Aspirations. Experts argue that it is a double-edged sword. Lenders blame developers for raising prices and only targeting upscale consumers rather than middle and low income classes, while developers blame lenders for raising mortgage interest rates. "It is a matter of fact that [real estate] supply is currently higher among the high class, however this won't last for long since developers are trying to cater to the middle class to avoid an oversupply problem that could develop in the future, El-Hefnawy said. Because of the budding relationship between real estate and mortgage finance, it is expected that when the developers' attention is diverted to the less catered for, mortgage finance schemes will move in parallel.
