CAIRO: Distrust and lack of public awareness regarding the role of financial institutions and developers in providing affordable housing impedes the market from reaching its full potential, said speakers at a Cairo conference.
A regulatory framework and more diverse financing products are also needed to spur the sector.
At the Euromoney Egypt Housing and Real Estate Finance Conference on Tuesday, stakeholders and officials exchanged views on the issues impacting the sector and recommendations on how to overcome the barriers to offering affordable housing to low-income earners — a pressing dilemma in Egypt today.
To address this salient problem, according to Advisor to the Minister of Investment Sherif Oteifa, the government will provide low-income housing using loans from the World Bank: 65,000 housing units will be built at a cost of LE 4 billion.
Oteifa highlighted that appropriate legislation — a mortgage financing law — is also needed to further develop the market. According to Investment Minister Mahmoud Mohieldin, Egypt plans on passing the new mortgage financing law in its next parliamentary session.
"We have a complete law ready to push forward the current mortgage regulations, to have better enforcement and enhance the efficiency of the sector," Reuters quoted Mohieldin as saying, adding there wasn’t enough time in the current session to discuss it.
Egypt’s market regulator is also planning on allowing more banks to offer life insurance products, which will allow more Egyptians to obtain insurance as well as open a bank account. This should further facilitate some of the legal aspects required in obtaining a mortgage for home ownership.
In 2005, there were only two mortgage finance companies in Egypt — that number has increased to 11 operating today. Officials at the conference said total mortgages stood at LE 4.5 billion, representing no more than 75,000 customers, but the new law could help double that in two years, Reuters reported.
Challenges
Already aware of the difficulty some Egyptians have in obtaining housing, Omar El-Hitmay, managing director of Orascom Housing Communities, spoke of his company’s development of affordable housing for the low-income segment.
When targeting this income bracket, the unit on offer needs to be within their financial reach, he said. The company offering such a product will have a very low profit margin, he added, which means that significant quantities of units must be sold. As such, it must be offered as a “basic commodity” and the company’s productivity process “must be similar to an industrial process,” he concluded.
Panelists laid forth the many barriers in selling housing in general, which include complicated, protracted registration processes, increased access to finance for borrowers, market segmentation and the need for market research.
Gus Freeman, managing director of the Arabian Research Bureau, commented on the lack of public trust in the banking sector, especially in the lower-income segment of the market, because, as he explained, “banks are far-removed from average individuals, and they need to be closer in proximity regarding delivery channels” to correct this perception.
Touching on the issue of public awareness, panelist Ahmed Taher, chairman and CEO of Solutions Consulting, pointed out that “a public awareness campaign focusing on mortgage finance is required, which must however emanate from a credible source, such as the government regulator and not a private sector actor.”
Lead Economist at the World Bank, Sahar Nasr stated that the government has a role to play in providing access to affordable housing by lending support in obtaining mortgage loans.
Nevertheless, Hala Bassiouni, managing director of the Egyptian Housing Finance Company, said that the mortgage loan sector fails to cater to its clientele. In Egypt, she explained, the culture dictates that individuals in the market to purchase a home are not seeking to make a life-time purchase — which is the purpose of mortgage loans — and desire a large home that is beyond their financial means.
Rather, they prefer to purchase a home for a short period of time, which makes the price tag associated with a mortgage seem out of reach, and thus, housing as well, preventing many potential customers from taking that crucial step in becoming a first-time homeowner.
Thus, Bassiouni concluded that the cultural mindset must change, in which potential homeowners will consider purchasing a home that is within their budget — LE 100,000 or less.
Best practices
Three American panelists — Alan Fowler, Brian Handal and SuSheila Dhillon — from the CMB Emerging Markets Group, presented their views, which were based on significant research as well as a case study they conducted, on how to foster a healthy housing market in Egypt.
They concluded that a common set of norms and regulations based on international best practices must be established in the sector to ensure trust and consistency in the housing and real estate market, as well as cooperation amongst the market players.
Specifically with regards to cooperation, they advocated, amongst other things, the sharing of information while competing, which would increase the level of professionalism in the field.
Creating such dynamics, the panelists explained, will provide predictability, which investors require when taking risks, such as providing loans for individuals to purchase homes.
“Investors require an understanding of the level of risk they are undertaking so as to have confidence that the loans they are backing are similar to one another,” they agreed.
In their estimation, “investing in education in the sector, cooperation among industry players and establishing unified industry standards are all key basics to generating a health market” in the housing and real estate sector. –Additional reporting by Reuters.
