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Proposal to provide mortgage for under-construction units stimulates local market, but needs CBE support
Published in Daily News Egypt on 20 - 06 - 2022

Egypt's Financial Regulatory Authority (FRA) held a meeting last week of the Mortgage Finance Advisory Committee to discuss proposals for developing the mortgage finance system, overcoming any obstacles facing it, and increasing mortgage finance companies.
The value of finance provided by mortgage finance companies amounted to EGP 8.1bn in 2021, and reached nearly EGP 4bn in the first quarter of the current year. The Committee targets mortgage finance in Egypt to reach approximately EGP 16bn by 2026.
Chairperson of the FRA Mohamed Omran stated that the meeting has discussed proposals submitted by the Real Estate Development Chamber at the Federation of Egyptian Industries and the Egyptian Mortgage Federation. It was agreed to raise a number of recommendations to be presented to the board of directors of the authority in its first meeting, as soon as it was formed, to consider its approval. These recommendations include considering the housing unit as a guarantor of the mortgage, and cancelling the 40% installment limit of income.
Omran added that demands of real estate developers have been met with regard to providing financing for housing units under construction as long as the provisions of mortgage finance law and its executive regulations allow financing of units under construction in accordance with regulations of the authority that take into account percentages of completion in units construction.
Real estate exports said that the current mortgage finance law does not prevent granting financing to units under construction since 2007, but due to the lack of a mechanism to guarantee payment risks, companies stopped financing unfinished real estate units.
Real estate developers said that Central Bank of Egypt's (CBE) instructions prohibit banks from granting funds to mortgage companies directed to housing units under construction, and therefore companies are forced to finance this product with a maximum of 25% of property rights, which is a small amount in light of capital of mortgage companies, which does not exceed EGP 250m.
Mai Abdel Hamid, Chairperson of Advisory Committee for mortgage Finance at Financial Regulatory Authority supported the authority's adoption of the proposal to amend value of financing granted, to a single investor, to 25% instead of 15% for residential purposes, and raise it for non-residential purposes to 40% instead of 30%.
Abdel Hamid noted that this decision comes in line with increases in housing units prices while providing a maximum concentration ratio for the total valuation portfolio.
She revealed that members of the Advisory Committee have approved a proposal to reduce amounts of money payable from property purchasers to become 10% of unit price instead of 20%. This is to urge real estate developers to sell financial rights of their real estate portfolios.
She further added that any decisions related to mortgage financing issued by the Financial Regulatory Authority must be accompanied by allowing banks to finance portfolios of mortgage companies directed to the units under construction.
Chairperson of BETA Egypt, Alaa Fikry, said that in case of activating the decision and procedures related to financing unfinished units, the market will be revived as we [developers] have a lot of stock of half-finished projects.
Fikry believed that Egyptian banks should have clear instructions by the CBE to have the green light for financing unfinished properties.
He further disclosed that once applying the decision, property market sales would be revived to deliver projects in time.
Customers have become very conscious before buying any unit, so they would prefer buying ready-to-move properties that is already built not off plans ones, he elaborated, pointed out that mentioned decision related to provide mortgage finance for unfinished units along with market organization would help together to boost and develop real estate industry in Egypt.
Mohamed Samir, executive board member at Bayt Misr, said that the current mortgage finance law does not prevent granting financing to units under construction. However, since 2007, the former governor of CBE has instructed banks to not duplicate financing through financing developer and its client at the same time, which was misunderstood after that by panning financing under construction properties.
Samir added: "Currently the demand has become very large on residential properties under construction. I think approximately 90% of current projects in different areas like New Cairo, New Administrative Capital, New Alamein, and others are under construction, consequently, the mortgage finance system is the only mechanism and channel to address these problems and challenges in the market."
He further noted that the decision to be approved in financing under construction properties would have a very strong and positive impact on the local property market.
The CBE should push banks to activate financing clients for buying under-construction units, he explained, going on saying, "The decision has a lot of benefits to the local real estate market, as it would evolve and promote business expansions and increase sales as well as serving the state's urban development strategy."
Meanwhile, Ayman Abdel Hamid, Managing Director and Vice Chairperson of Al Taamir Mortgage Finance – Al Oula, stated that mortgage finance sector witnessed a remarkable growth in 2021 as a result of the CBE's initiatives, which supported strong index by purchasing mortgage finance portfolios from developers to provide necessary liquidity to carry out construction process to be able to deliver projects.
Abdel Hamid added that mortgage finance companies sector only, with the exception of the results related to banks, provided financing to more than 500,000 customers over the past 6 years related to initiatives of the CBE. In the last 6 years, it is 15 times what was funded during the 10 years.
"Accordingly, we find that there are approximately 2.5 million citizens who have benefited from mortgage financing initiatives, and it is expected that the new 3% initiative will double the number of beneficiaries, and this means that through only two initiatives during the ten years, we covered approximately 7.5% of the Egyptian population," he noted. "Beneficiary of the mortgage finance sector is considered a major marketer of the mortgage finance system, especially that some have wrong information about procedures for obtaining mortgage finance."
Abdel Hamid appealed to the need to increase awareness among individuals, especially that the old law of real estate finance required the registration of the unit to finance it, but the situation changed in new law that was established in 2004 as 95% of funding is currently granted to units that are not registered, but are registrable.
He pointed out that there are some clients who do not have full knowledge of legality of papers of units they wish to finance, and they inform us of these papers to judge their validity and their ability to finance or not and to reassure clients, expecting a new boom for the sector in 2022.
The practical reality revealed some of the obstacles facing mortgage finance agencies when granting finance, which is based mainly on problems related to registration and mortgage process for units financed by the mortgage system, he disclosed.
Abdel Hamid further added that these complicated procedures led to difficulty of having a real estate guarantee that motivates these agencies to grant finance in a way that inevitably overcomes aspects shortcomings and obstacles related to real estate guarantees obtained by mortgage financing agencies.


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