CAIRO: Mortgage finance is not a magic wand that can solve Egypt’s housing problems in light of relatively high interest rates, several real estate experts said conference Tuesday.
“Demand on housing units is on the rise, but supply cannot meet this growing demand. There are not sufficient mortgage finance schemes available, and interest rates are not compatible with income levels, said domestic real estate giant Hisham Talaat Moustafa.
Moustafa was speaking at a conference entitled “Mortgage Finance: Challenges and Aspirations, organized by Egypt’s International Economic Forum (EIEF). There was heated debate at the event between real estate and mortgage finance experts. While Moustafa blamed lenders for raising mortgage interest rates, lenders blamed developers for raising prices and only targeting upscale consumers rather than middlelow income classes.
“Mortgage finance schemes in Egypt address only 20-25 percent of Egyptians, while the remaining 75-80 percent are overlooked, he added. “[High] interest rates present an impediment.and it is the government’s role to [lower] interest rates especially for lower income groups.
Depending on their mortgage finance strategies, mortgage finance companies as well as banks in Egypt basically finance 40-90 percent of a property s value, at an interest rate ranging between 12-14 percent, payable over 10-20 years.
The Mortgage Finance Authority (MFA) was established to oversee proper implementation of the mortgage law – passed in 2001 – supervise mortgage finance companies in Egypt and ensure efficiency of the mortgage market. Mortgage finance is now available through six companies that have begun operations in the past two years, in addition to some ten banks.
“These six companies have been established with a capital exceeding LE 1 billion. So far, they have granted mortgages worth more than LE 500 million, said Osama Saleh, chairman of the (MFA). “As for banks, they have granted around LE 1.5 billion worth of mortgage loans. This means that total size of mortgage finance in Egypt is now at more than LE 2 billion.
He pointed out that mortgage finance is quite pre-mature in Egypt. It represents around 7-8 percent of the country’s GDP.
“This figure is quite insignificant.. But mortgage finance is going to pick up, especially in banks. Estimates show that the market can absorb LE 15-20 billion worth of mortgage loans per year, Saleh added.
“The main challenge mortgage finance faces in Egypt is that less than 10 percent of Egyptians are bankable. But as you raise awareness of importance of mortgage finance, figures are going to [multiply], he added.
Meanwhile, Mousafa focused on the problem of high interest rates versus a low purchasing power.
“I am not as bullish as many others on mortgage finance in Egypt. We have a big problem in Egypt, Moustafa pointed out. “Interest rates are an obstacle. .How many Egyptians can afford to pay LE 1,500 per month in mortgage loans?
He said that lenders were too cautious in offering attractive mortgage schemes that would apply to lower segments of the society. “Financial institutions in Egypt can easily earmark LE 40-50 billion to mortgage loans [versus the current LE 2 billion].
Moustafa added that there was a deficit of supply of 250,000 housing units per year. Mortgage finance, he added, only helps 20 percent of the society.
“The end result is that the remaining 80 percent will live in shantytowns.. We are sitting on a time bomb. And the [authorities] have to pay more attention to middle/low income housing in order to save Egypt’s economy from any crisis that could occur in the future.
On the other hand, mortgage finance officials denied that interest rates were an obstacle facing mortgage finance in Egypt. Interest rates, Saleh explained, are the mirror image of the country’s economy and are predetermined by the Central Bank of Egypt.
Last February, Egypt s central bank raised its key overnight interest rates by 25 basis points, the first rate change in over a year. The bank said it raised its deposit rate to 9 percent and its lending rate to 11 percent due to higher food prices and inflationary pressure from surging economic growth.
“In light of growing inflation, interest rates have to increase, said Fathi El Sebai Mansour, chairman of the Housing Development Bank. “Interest rates are not an obstacle because prices of property are [shooting up] over time.
Financiers, however, pointed their fingers to real estate developers saying they embark on luxury housing at whopping prices while ignoring middle/low income housing.
Mansour asked why real estate developers don’t focus on constructing middlelow income housing. “Sixty, 70, 80 square meter units are now on demand, however, they are not available on the market, he stated.
From a developer’s perspective, the answer is simple. “Because lower income groups still cannot afford prices of these units in light of escalating prices and poor income.and because interest rates on mortgage loans are high, Moustafa explained.
“We have to be realistic. Purchasing power is weak. You can’t say there is demand on low income housing when there is no purchasing power, said Hisham Shokry, CEO of Roaya for Real Estate and Contracting Work Investment Group. “If developers construct middle/low income housing, it will not sell. Lenders want to make profits, just like developers do, and it’s their rights. But citizens want to live in apartments.
“The ideal solution is to present a mechanism that bridges the gap between price hikes and poor income, Shokry added.
