Since the 1990's, Egyptian policy makers have been taking important steps towards creating a real estate finance system that would enable financial intermediaries to provide loans to homebuyers with minimal risk. Egypt’s Real Estate Finance Law (REFL) of 2001 established industry standards and a regulatory framework. The Mortgage Law puts home ownership within the reach of most Egyptians, and accordingly increases their buying power. The lending institution is able to accelerate the loan and repossess the property in case of default by the borrower.

However, progress in the real estate industry has been slow due to a number of factors, including economic recession, minimal foreign investment, and an unfavorable imbalance between supply and demand. While developers driven by profit focused on building medium- to high-end residential properties in new cities, potential buyers remain reluctant to move to such areas as the services and infrastructure do not meet their expectations. The oversupply of housing has been exacerbated by the lack of liquidity in the market and the only way to buy a home has been with cash or through prohibitive loans from commercial lenders.

In 2003, Egyptian officials implemented several measures to support and stimulate the evolution of the real estate finance market. The Ministries of Finance and Justice agreed upon and implemented in April 2003 a reduction in the urban property registration fee from 6.0 to 4.5 percent. The General Authority for Real Estate Finance Affairs (GARF), renamed the Mortgage Finance Authority (MFA), began operations and, during the summer of 2003, initiated the training, testing, and issuing of licenses for appraisers and real estate brokers. MFA also developed the process and the application forms for licensing “real estate finance companies” that, together with commercial banks, will provide real estate finance under the procedural protections of the REFL. As of October 2003, MFA officials reported that two consortia have begun the process of forming real estate finance companies and successfully applied for their licenses early in 2004.

Furthermore, the Ministry of Investment has begun to study options for a possible securitization company or facility as part of the process for establishing a secondary market for mortgages, most likely through the issuance of “mortgage-backed securities” that could draw in new, long-term funding for the real estate finance market.

Currently, the Ministry of Investment is working on building the market infrastructure required for real estate financing and other forms of secured lending. The Ministry aims at widening access to and increasing the affordability of owner-occupied housing by lowering down-payments, lengthening maturities of housing finance, and lowering the effective interest cost of home loans. In addition, the Ministry seeks to ensure that banks and other primary lenders will be able to resell home loans or to otherwise obtain long-term funding, so that formal-sector finance of housing can grow to a significant size in relation to national income.

The Egyptian Mortgage Law 148 was promulgated in August 2001.  However, it was rendered ineffective for the three years following the promulgation.  No contracts were signed and the public became despondent.

This stagnant state remained even after the two Presidential decrees created the Egyptian Mortgage Finance Authority (MFA) and the Guarantee and Subsidy Fund (GSF), the market regulator and the fund for the low-income lenders respectively. 

The new Cabinet spurred a new level of confidence and hope in the market.  In August 2004, the first mortgage contract was sanctioned that abided with mortgage law 148/2001. Currently 280 mortgage loans have been agreed between the public and the GSF; 282 applications are awaiting approval from lender companies but have been approved for subsidization by the GSF [1] , and 120 mortgage loans have been agreed in the private market by the two lending companies. Of the 120 private mortgage loans, 43 loans were approved as a result of client walk-ins, without any special promotion. These numbers, though they do not reflect the potential of this nascent market, do symbolize the commencement of an efficient and fair market that has come to life due to proper planning and strategizing. 

Legislation

In late 2004, the newly-appointed directors of the MFA realized the mortgage contracts being offered did not match the real life circumstances of the applicants nor the industry’s needs. Numerous complaints had been filed by various participants requesting a prompt change, especially by the mortgage finance companies requesting new standard contracts.  New forms replaced the old ones to address market needs. In March 2005, mortgage finance law’s executive regulations were amended by the Cabinet. The most important of these amendments to allow the mortgage finance companies to use any documents they saw fit as proof of income of applicants. Also banks were given access to the market after being approved by the Central Bank of Egypt. Real estate agents fees were cut from 5 per cent to 2.5 per cent.

Fairness and transparency

One of the roles of the MFA as mandated by the Presidential Decree is to ensure the proper and efficient functioning of the market and protecting the rights of all the market participants. Hence, the MFA unified and standardized the algorithms used for the calculation of the amortization tables and mortgage installments. This was done after discovering some discrepancies in the market and after international consultants stressed the importance of standardizing mortgage calculations for the well being of the secondary market. Moreover, the MFA has been a strong advocate of raising the level of professionalism in the market and that has been accomplished by setting strict regulations on the licensing process for the market participants and training requirements which they have to meet in order to be registered to work in the market.  In addition, the MFA has developed a database that includes the names of all the registered mortgage market participants as well as a database for the all the mortgage contracts sanctioned by the mortgage finance companies. This allows the MFA to monitor every loan not only to protect the consumers but for statistical data analysis that will help it to develop the market and introducing appropriate regulations.

Registration

One of the major impediments to the development of the mortgage market in Egypt has been classified as the registration issue. The Egyptian Government had made the development of the registration system in Egypt a high priority with the appointment of the Ministry of Administrative Development for oversight.  A committee has been created to oversee the development of registration pilot projects and assess their success.  Some the members of committee include the Ministry of Administrative Development, Ministry of Justice, and the MFA.

Subsidization

One of the integral roles of the GSF is subsidizing loans to citizens with lower levels of income.  At first, the GSF subsidizes a portion of the cost of finance. However, after numerous studies, the Minister of Investment announced the shift to an upfront method of subsidization would be adopted. The current method offers the low-income investor an upfront cash subsidy of 15 per cent of the price of the unit up to 10,000 LE and which solved the problem of settling the required cash for buying a residential unit, covering same current value of the subsidized cost of finance while serving a much larger volume of benefactors.

Around 1,000 applications have been received by the GSF requesting the purchase and subsidy on the Kattaemia professional syndicate housing project where the GSF owns 1,200 units. These units are part of the GSF’s EL 400 million current resources, which include cash, fixed assets, and debts against others.

Payment guarantee

The Ministry of Investment and the MFA currently are working on introducing mortgage insurance to the Egyptian mortgage market.  Nevertheless, the GSF has already been guaranteeing payment for three months on behalf of low-income investors.  This three -month guarantee is offered only once every five years and only in rare cases of extreme inability to meet payments. The Egyptian Government wants ensure the wellbeing of the market while protecting the low-income citizens and providing him with the tools to enhance his living conditions.

Information

Lack of information has plagued the Egyptian market for a long time and has reduced the amount of investment in the country.  However, with the new Cabinet’s appointment, a new movement has been monitored in the level of transparency in the market.  This has been exemplified with the MFA’s keen role in disseminating accurate information to the public on a timely basis. The MFA has established databases of all market participants and is currently working on publishing a real estate database that includes a list of available housing units. Moreover, the MFA is creating a mortgage portal that should be launched in October. This mortgage portal shall include FAQ’s, lists, and information regarding the Egyptian mortgage market.

Public awareness

The Ministry of Investment has published a highly informative mortgage finance guide to provide guidance to any prospective investor on how to obtain a mortgage loan as well as his rights and liabilities throughout the process. This comes as part of the plan of the Ministry of increasing the level of awareness of the public about the mortgage market.  Furthermore, the MFA has been cooperating with the Egyptian Financial Services Project in the planning of a large, nationwide public awareness campaign that started with consumer surveys in the market. The surveys brought out some interesting facts that will help in the proper targeting of the campaign.  Moreover, the MFA has also been part of numerous expos and conferences related to the real estate industry in an attempt to market the Egyptian mortgage market.

The Ministry of Investment is aiming to mobilize all stakeholders and activate the mortgage industry through implementing the following tactics:

• Establish dedicated Communication Team/Function
• Highlight a Mortgage Contact Point
• Hotline

·MOI portal

·Stakeholders' Education and Communication

·Comprehensive Media Education Program

Appraisals

The MFA, with the aid of the Egyptian Appraisal Association, EFS, Cairo University, and Ministry of State for Administrative Development, have been working on publishing the standards of appraisal and the appraisers’ code of ethics, which should help in raising the level of competency and transparency in the market as well as adding a higher level of confidence from lenders.