Reforms to improve mortgage process designed to boost investments
CAIRO: By March 2006, 490 mortgage loans worth a total of LE 178 million had been granted by the two sole mortgage finance companies in Egypt, Al-Taamir and Al-Masria, according to the Ministry of Investment. Mortgage loans granted by banks also increased, amounting to LE 125 million since banks started financing mortgages.
Despite the passing of the mortgage finance law in 2001, designed to facilitate growth in the real estate market and the mortgage finance industry and transform it into the next booming sector in the market, it had failed to do so until recently.
Since the establishment of the law, Al-Taamir and Al-Masria have made only a handful of loans. This can be attributed to a weathered mortgage system in dire need of an overhaul. For one, the industry lacked an expert labor force, including loan officers and appraisers. The process of real estate registration, the heart of mortgage financing, was also complicated, expensive and long, reflected in the fact that in 2005, 80 percent of real estate property in Egypt was not registered. Land registration is a vital issue, since land registration is the strongest guarantee for financial lenders in the case of investor default.
In the last two years, the Ministries of Investment and Finance, together with the Central Bank of Egypt (CBE) and the Mortgage Finance Authority, have tackled the challenges that have stopped the market from shaping up. Official registration fees have been reduced to three percent, banks and non-banks are now allowed to issue mortgages using their own set of rules to define the borrower’s income, and for the first time under Egyptian law, a clear set of procedures for the foreclosure on property of defaulting debtors has been inked. Mortgage finance is also set to expand to include buying lands and developing real estate.
In order to address the scarcity of long-term financing for homeowners in the country, the Egyptian Housing Finance Company, the first privately owned specialized housing finance company in Egypt was established in 2004, providing long-term loans for housing investments, especially those in the middle-income bracket.
The Ministries of Housing and Finance are reportedly addressing the concept of long-term mortgages to reduce costs for low-income families. Initially, the creation of the mortgage law was designed to do more than just facilitate and smooth out the knots in the mortgage financing and real estate sectors. In fact, the law is supposed to protect the mortgage lender against default by allowing for the eviction of home-buyers who fail to keep up with their mortgage payments.
Fans of the law also saw it as the beginning of modest housing developments geared toward first-time homeowners, usually middle and low-income families who hold no property under their names.
The establishment of a mortgage refinancing company should be launched soon, according to the Ministry of Investment. This joint stock company, which will be formed by mortgage financing entities, will have a paid-in capital of LE 200 million with a 20 percent stake held by CBE.
At a meeting last Wednesday between the head of the Mortgage Finance Authority, Osama Saleh, and the deputy governor of CBE, Tarek Amer, and Minister of Investment Mahmoud Mohieddin, the development of the mortgage finance secondary market was discussed, according to a statement issued by the ministry.
Mortgage finance procedural developments and legal amendments to reduce registration fees were also reviewed at the meeting and will be introduced through a decree by the Minister of Justice.
