Proposal to provide mortgage for units under construction boosts local market, but needs support from Egyptian CBE

The Egyptian Financial Regulatory Authority (FRA) held a meeting of the Mortgage Finance Advisory Committee last week to discuss proposals to develop the mortgage finance system, overcome the obstacles it faces and grow the companies mortgage financing.

The value of finance provided by mortgage finance companies amounted to EGP 8.1 billion in 2021 and reached nearly EGP 4 billion in the first quarter of the current year. The Committee aims for mortgage finance in Egypt to reach around EGP 16 billion by 2026.

FRA President Mohamed Omran said the meeting considered proposals submitted by the Real Estate Development Chamber of the Federation of Egyptian Industries and the Egyptian Mortgage Federation. It was agreed to raise a number of recommendations to be presented to the authority’s board of directors during its first meeting, as soon as it is formed, to consider its approval. These recommendations consist in particular of considering housing as the guarantor of the mortgage and of canceling the limit of 40% of income.

Omran added that the demands of real estate developers have been met with regard to the financing of housing under construction as long as the provisions of the Mortgage Finance Law and its implementing regulations allow the financing of housing under construction in accordance with the regulations of authority that take into account completion percentages in the construction of units.

Real estate exports reported that the current law on mortgage financing does not prevent the granting of financing to units under construction since 2007, but due to the absence of a payment risk guarantee mechanism, companies have stopped funding unfinished real estate units.

The property developers said that the instructions of the Central Bank of Egypt (CBE) prohibit banks from granting funds to mortgage companies intended for housing under construction, and that the companies are therefore obliged to finance this product with a maximum of 25% of the property rights, which is a low amount considering the capital of building societies, which does not exceed 250 million EGP.

Mai Abdel Hamid, chairman of the advisory committee for mortgage financing at the Financial Regulation Authority, supported the adoption by the authority of the proposal to modify the value of the financing granted, to a single investor, to 25% instead of 15% for residential purposes, and to increase it for non-residential purposes to 40% instead of 30%.

Abdel Hamid noted that this decision is part of the increase in housing prices while providing a maximum concentration ratio for the entire valuation portfolio.

She revealed that the members of the advisory committee approved a proposal to reduce the sums of money payable by property buyers to 10% of the unit price instead of 20%. This is to encourage real estate developers to sell the financial rights of their real estate portfolios.

She further added that any decision on mortgage financing issued by the Financial Regulatory Authority must be accompanied by an authorization for banks to finance the portfolios of mortgage companies for units under construction.

BETA Egypt President Alaa Fikry said that in case of activation of the decision and procedures related to the financing of unfinished units, the market will be revived because we [developers] have a lot of stock of half-finished projects.

Fikry said Egyptian banks should receive clear instructions from the CBE to get the green light for financing unfinished properties.

He further revealed that once the decision is implemented, sales in the real estate market will be revived to deliver the projects on time.

Clients have become very conscious before buying a unit, so they would prefer to buy move-in ready properties that are already built and not off-plan, he explained, pointing out that the decision mentioned was about granting a mortgage financing for unfinished units as well as the organization of the market. would together help stimulate and develop the real estate industry in Egypt.

Mohamed Samir, a member of the management board of Bayt Misr, said that the current law on mortgage financing does not prevent the granting of financing to units under construction. However, since 2007, the former Governor of the CBE instructed banks not to duplicate funding via sponsor and client funding at the same time, which was later misunderstood by bundling funding into building properties.

Samir added: “Currently the demand has become very high on residential properties under construction. I think about 90% of the ongoing projects in different areas like New Cairo, New Administrative Capital, New Alamein and others are under construction, therefore, mortgage finance system is the only mechanism and channel for solve these problems and challenges in the market. ”

He further noted that the decision to be approved in the financing of properties under construction would have a very strong and positive impact on the local real estate market.

The CBE is expected to push banks to activate financing customers for the purchase of units under construction, he explained, going on to say, “The decision has many benefits for the local real estate market, as it would evolve and promote business expansion and increase sales as it goes. while serving the state’s urban development strategy.

Meanwhile, Ayman Abdel Hamid, Managing Director and Vice Chairman of Al Taamir Mortgage Finance – Al Oula, said the mortgage finance industry has seen remarkable growth in 2021 thanks to CBE initiatives, which have supported a strong index by buying mortgage finance portfolios from developers. provide the necessary cash to complete the construction process in order to be able to deliver the projects.

Abdel Hamid added that only the mortgage finance company sector, excluding bank-related results, provided financing to more than 500,000 clients in the last 6 years related to CBE initiatives. In the past 6 years, that’s 15 times what was funded in the 10 years.

“As a result, we see that there are approximately 2.5 million citizens who have benefited from mortgage finance initiatives, and it is expected that the new 3% initiative will double the number of beneficiaries, which means that through just two initiatives over the ten years, we have covered around 7.5% of the Egyptian population,” he noted. “The beneficiary of the mortgage finance industry is considered to be an important distributor of the mortgage finance system, especially since some have misinformation about the procedures for obtaining mortgage finance.”

Abdel Hamid called for the need to raise awareness among individuals, especially that the old law on real estate financing required the registration of the unit to finance it, but the situation has changed in the new law which was established in 2004 as 95% of funding is currently given to unregistered, but registrable units.

He pointed out that there are clients who do not have full knowledge of the legality of the papers of the units they wish to finance, and they inform us of these papers to judge their validity and ability to finance or no and to reassure customers, while waiting for a new boom for the sector in 2022.

The practical reality has revealed some of the hurdles faced by mortgage finance agencies when granting finance, which is mainly based on problems with the registration and mortgage process for units financed through the mortgage system, he revealed.

Abdel Hamid further added that these complicated procedures have led to the difficulty of having a real estate guarantee that motivates these agencies to grant financing in a way that inevitably overcomes the aspects of the shortcomings and obstacles related to the real estate guarantees obtained by the mortgage financing agencies.

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