Although the government has so far provided approximately EGP 17.5bn as mortgage funds to serve 200,000 clients, real estate developers are unsatisfied regarding the state’s conduct regarding this issue.
Additionally, the real estate mortgage finance portfolio of 11 companies operating in the Egyptian market reached EGP 9bn by the end of the first quarter (Q1) of the current year, compared to EGP 8.47bn in December 2017—an increase of EGP 554.5m.
Developers believe that promoting mortgage finance systems is the best and ideal method to revive real estate sales and avoid a recession in the market.
Managing Director (MD) and Board Member of Tatweer Misr, Ahmed Shalaby, expected that the market would witness a hiatus in sales during the coming phase, especially with the continued focus on a specific residential segment, in addition to the lasting stability of customers’ purchasing power.
Shalaby added that real estate companies have played their role during the previous spell, apropos economic and market variables and maintaining market operations, which may discontinue in the event of new reforms, as these companies have a financial solvency which must be maintained, so providing any new arrangements linked to company’s capital must have limitations in order for the company to be able to remain in the market.
The government must reconsider the mortgage financing system, which currently is the most prominent option to reinvigorate sales operations in the real estate market, indicated Tatweer Misr’s MD.
ARCO’s CEO Ayman Ibrahim noted that the mortgage finance rate is rather limited, and that it must be changed. Naturally, it is not less than 90% of the total customer numbers—as in the rest of the world—and the government must compensate the interest in mortgage financing, clarifying that there are international mortgage finance benchmarks which can be applied.
Next year will witness major changes in the real estate market, focused primarily on categorising serious and committed developers, who are capable of managing the variables that will be imposed upon them by the market during the next stage, Ibrahim elaborated,
Companies which have a solid financial solvency will survive, through which they will provide payment periods and a unique payment systems for their customers to encourage them to take a purchasing decision, stressed ARCO’s CEO.
Amlak Finance and Real Estate Investment’s CEO, Hatem Amer, said that the real estate mortgage sector is facing certain challenges, including the lack of awareness among Egyptians about the importance of real estate funding.
Amer added that the CBE’s initiative to support mortgage finance has succeeded in increasing the spread of mortgage finance, noting, “The increase in interest rates is another challenge to mortgage finance, especially after the raises in the value of the interest rate in the past period, which negatively affected the sector.”
Premium Assets for investment and Real Estate CEO, Riad Eladly, said that the shortage of affordable residential units created a upswing of illegal construction, without government permits during the past three years.
Eladly elaborated that the complication mortgage finance law forced some people to purchase units at low prices in some informal areas, however, if the government provides an affordable mortgage finance, it will eliminate and decrease informal buildings.
The mortgage system in Egypt needs more practicability to attract more clients and increase real estate market’s sales, stressed Eladly.
Asser Hamdy, executive chairman of Orientals for Urban Development, said that it is noticeable during Q3 of the current year that demand for projects implemented in some areas such as New Cairo, Sheikh Zayed and Sixth of October, is still.
“But, in general, the segments where most companies compete in began to saturate, especially with the high volume of competition, and the supplying of attractive offers which led to the split of residential segments between companies, decreasing each company’s share to that its previous state,” Hamdy elaborated.
He explained that the high prices in those areas resulted in increases in land prices and construction expenses, with the supply increase, especially after the growth in the volume of projects in East Cairo during the recent period, which may be the main reason for tranquil demand operations in the real estate market, which drives companies to reformulate an alternative plan, in the event of a subdued demand.
Hisham Shokry, chairman of Rooya Group for Real Estate Investment, said that real estate market is witnessing a deceleration, denying an imminent bubble driven by increased demand, since about 900,000 couples marry annually, and every five years developers provide about 50,000-60,000 units, which obviously does not match demand.
He also requested that the government provide increased incentives for developers, denying that developers’ profit margins are not highly driven by high land prices.
However, Ashraf Dowidar, CEO of ARDIC Real Estate Development, said that banks are wary from offering loans with low interest to developers, and therefore developers provide units at high prices.
There is no bubble, but it occured in a special segment of real estate projects, Dowidar indicated.
The government’s intervention in the sector may participate in the sector’s decelaration, however, the state can be responsible for identifying market needs and addressing their problems, remarked ARDIC’s CEO.
Mohamed El Barouny, head of Corporate Banking at CIB, said that banks are acting as technical supporters and supervisors for companies and developers and not just fund providers.
El Barouny noted that banks are interested in providing finance for infrastructure development in projects such as new cities, road networks, and other utilities.
He reaffirmed that the size of mortgage funds and developers’ loans is very small.
No downtrend in real estate sales
However, CEO of Brickzey Property Management, Ahmed Selim, sees that there is no downtrend in real estate sales, despite the recent high competition level among the companies on a specific residential segment, especially above middle-income and luxury housing, however, that segment still needs more housing units.
Selim pointed out that the market’s overall delivery, in general, is less than marketed, stressing that the vast and strong companies—who have a strong financial and outstanding solvency and commitment with their customers—are outside the competition, and they managed to survive throughout the market changes.
However, Selim believes that the mortgage finance fund is not the best solution to revive the sales in the sector because the mortgage plays its role in serving people who want to purchase property for housing purposes only and not as investors.
It is illogical to have a mortgage finance to purchase a unit for investment purposes, noting that there is a real demand and sales in the sector, Selim pointed out.
Ali Gaber, CEO of Impact Commercial Real Estate, agreed with Selim that the mortgage finance is not solution to the deceleration in the market, however, price land increases and cost spikes affected the market because the clients’ purchasing power remained unchanged.
Gaber noted that mortgage finance, along with exporting property, can lead to the recovery of the real estate market with the condition of eliminating bureaucracy—especially since there exists controls which ensure all the financer’s rights.
However, the real estate market must decontaminate itself of the fanciful developers whose financial abilities do not exceed paying the amount of land contracts in the New Capital.
Developing a new mortgage finance system at an appropriate interest rate with less bureaucratic procedures, will contribute towards in stimulating sales operations, especially in some segments, which are saturated, Gaber elaborated.
Government increases mortgage finance
Head of the Mortgage Finance Fund (MFF), Mai Abdel Hamid, said that banks’ financing provided under the Central Bank of Egypt’s (CBE) mortgage finance initiative increased by EGP 1bn in one month.
Abdel Hamid added that banks raised their financing share which was introduced into the mortgage finance initiative until the end of October, to reach approximately EGP 17.5bn compared to EGP 16.5bn by the end of September.
The CBE has allocated EGP 20bn towards the mortgage finance initiative four years ago, with a subsidised interest rate for a low-income and middle-income citizens, and a decreasing interest rate ranging from 5% to 7% for low-income people, 8% for middle-income and 10.5% for above middle-income citizens.
Deputy Minister of Housing for National projects, Khaled Abbas, said that the size of mortgage finance under the initiative of the CBE will reach EGP 20bn by the end of this year.
Abbas added that mortgage finance faced a big problem during the past period, where it was wrongly marketed, elaborating that mortgage financing does not focus on the interest rate.
Abbas noted that the Ministry of Housing successfully solved the crisis of mortgage finance for low-income and middle-income people.