Finding a job and obtaining an affordable flat are the two gargantuan challenges facing the majority of young Egyptians as they set out on adult life and prepare to start a family.

Even when work is available, most engaged couples find they are compelled to postpone marriage for several years until they can afford housing. Many a relationship has foundered because the man could not save enough to provide an independent home for his bride-to-be.

But now the beginnings of a solution can be discerned with the birth of a mortgage market, even if there are still hurdles for poorer people.

A mortgage law was passed in 2001, but it is only in the past year that the market has started to take off.

“There was a lack of expertise, of regulation, of technicians and of awareness among the public,” says Osama Saleh, the former private sector banker who is now chairman of the Mortgage Finance Authority (MFA), the regulatory agency that has put in place the infrastructure necessary for the market to function.

Total mortgage lending is expected to reach $363m (E£2bn) by the end of this year, most of the deals having been signed in the past two years.

For a country of 80m people, these are still small figures, but industry practitioners say it is only the beginning.

“Mortgage lending is going to escalate very quickly,” says Sahar El Sallab, vice chairman of Commercial International Bank. “The market is so big. We are talking about 10 per cent of the population.”

According to Osama Saleh, 300,000 families are formed every year. He says there is a need for an additional 200,000 units of housing over and above the 200,000 constructed annually.

To encourage people to register their properties – a prerequisite for mortgages – the government has slashed stamp duty, making it a fixed rate instead of a percentage of the price.

Another recent development expected to boost lending is the establishment of the country’s first credit bureau. Egypt is very much a cash society, and historically there has not been much data or analysis available on the credit worthiness of individuals.

The successful completion of a handful of foreclosures in the past year has also reassured lenders in a country where enforcing contracts can be frustrating. 

Currently 11 banks and five specialist finance companies offer mortgages. More are expected to start in the coming months.

The MFA has set about educating the general population and the financial community.

It has mounted an advertising campaign to explain the benefits to a public wary of borrowing and of banks. It has also been training and licensing the professionals who work in the field such as surveyors, appraisers, brokers and foreclosure agents.

“We’ve come a long way from where we started,” says Hala Bassiouni, the managing director of the Egyptian Housing Finance Company. “There are now policies and procedures, and the regulator helps us to solve problems.”

She says business has started to pick up, though she cites the lack of public awareness and the soaring prices of real estate as challenges to the market.

“Egyptians are very averse to long-term risk,” says Ms Bassiouni. “I can offer them a loan for 15 years, but they opt to go to the developers who ask them to pay over three years. People believe the banks are ruthless and charge higher interest rates. Developers say their offers are interest-free which is never true, because the interest is embedded [in the price].”

She says another problem is the steep rise in the price of property over the past two years.

“We started with an average loan size of between E£200,000 and E£250,000 ($36,000-$45,000) but now we are approaching E£600,000 ($108,000),” she says. “Now the prices of units have shot up, we are catering to a higher bracket of people. The real problem is the unavailability of properly-priced units to match with the incomes of people”

It means a mortgage is still out of reach for those on low and even middle-level incomes – the vast majority of Egyptians.

To extend mortgages to the poor, the MFA administers a fund that has provided 4,000 homes in the past 18 months. This provides an upfront cash subsidy to borrowers, provided their income does not exceed a monthly E£975 ($175). Mr Saleh says the MFA has disbursed $6.5m in subsidy and aims to make available 14,000 units next year.

But these figures barely dent the demand for low-income housing. Poorer Egyptians have for decades found a solution to their needs by building in slums. But this housing cannot be registered because it is built in breach of laws banning building on agricultural land. Experts say the informal sector accounts for 45 per cent of new units in Cairo.

Source: Financial Times