CAIRO: The Egyptian government has long been chipping away at the country s shortage of affordable housing, but its recent expansion of mortgage financing may be its most innovate idea yet. While construction programs remain an essential piece of the plans, the state-owned National Bank of Egypt (NBE) s new fund will capitalize on an underdeveloped segment, benefiting both aspiring homeowners and lenders. The NBE loans will cover up to 80 percent of the costs of the homes and range between LE40,000 ($7,200) and LE3m ($540,000). Recipients will be able to pay off their debts in low instalments extending up to 20 years. At the press conference in July, the bank announced that it has allocated LE10bn ($1.8bn) for the programme. Although NBE joins about 10 other companies providing housing finance, and regulatory laws were passed in 2001, the segment has yet to really take off. At approximately LE3bn ($54m), just 0.3% of GDP, mortgage financing remains a small contributor, even by emerging market standards, according to EFG-Hermes. Despite the sluggish start, Osama Saleh, chairman of the Mortgage Finance Authority, gave an optimistic assessment of the sector s potential at Cairo s third annual Euromoney Egypt Housing Finance Conference in June. Our goal is to do LE40bn ($7.2bn) in mortgage loans over the next seven years, which will bring Egypt s mortgage-to-GDP ratio up to a level comparable with other developing countries. The government has made moves to facilitate the sector s growth, including simplifying the process of property registration, but for mortgage financing to take off, the public needs to be better educated about the option. Certainly there is no shortage of people who could benefit from an increased availability of loans. A booming population and growing urbanisation have made it difficult for the supply of affordable housing to keep up with demand. At the time of the most recent government census in 1998, Egypt s housing shortfall stood at 4m units, with annual new demand estimated at around 570,000 units. Since then annual production has averaged 300,000 units, leaving unsatisfied demand of around 270,000 units a year. Using these numbers as a guide, OBG estimates that the national shortfall has risen over the past decade to perhaps 6m units. To satisfy demand over the next two decades, the government estimates that annual production will need to rise to 820,000 units a year. The need for residential units is such that the issue has become a political concern. President Hosni Mubarak made the provision of 500,000 affordable housing units by 2011 one of his 2005 campaign pledges. As part of the sixth five-year plan, the national housing policy aims to maintain private-sector implementation levels of at least 80%. Total investments in the housing sector for 2006-07 (the last year for which figures are available) reached LE15.65bn ($2.89bn), a slight fall on the previous year s figure of LE16.5bn ($3.05bn), but was achieved through 95% private-sector implementation. This May, the Ministry of Housing announced that the government is planning to cooperate with private developers to build new units over the next two years. These homes will then be sold at subsidised prices. Sahar M Tohamy, the economic advisor to the Minister of Housing and Utilities, has said that the government hopes that the private sector will continue to collaborate beyond this project and to incorporate the demand demographic into the market . It seems that the private sector is as eager as the government to continue the partnership. At the Euromoney conference both Ahmed Zahran, the managing director and CEO of Tamweel Finance Housing, and Hala Bassiouni, the managing director of Egyptian Housing Finance Company, said that the more stable demand in the lower segments of the market offers developers the chance to make solid profits this year, even if major projects are stalled. These announcements are good news for the long-term health of the Egyptian housing market, and shifting macroeconomic factors might provide some respite even before the reforms make an impact. If construction costs continue to remain low and inflation keeps falling, both developers and consumers will see a rise in their purchasing power, despite the downturn. -This article was first published by Oxford Business Group on July 17, 2009.
