Egypt in dire need of push for low-income mortgages
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Egyptian banks plan to introduce products that would facilitate the financing of low and middle-income housing in the form of long-term loans at low interest rates, according to the state-owned Middle East News Agency (MENA).

Hesham Ramez, the Central Bank of Egypt (CBE) governor, said Monday that these mortgages aim to alleviate the country’s housing problems by offering financing options to customers with limited income. 

In late February, the CBE said it would allocate LE10 billion for low-cost housing projects, to be deposited to banks for 20 years at a low interest rate. Banks would then relend to citizens who qualify to buy houses at a yearly interest rate of 7-8 percent, Reuters reported.

The mortgages targeting low-income housing units would carry a 7 percent interest over 20 years, while middle-income financing options would have an 8 percent interest over 20 years, Ramez said at a conference, as reported in MENA.

Egypt introduced mortgage financing in the mid-2000s as consumer appetite for loans grew, namely for automobiles and housing.

From 2006 to 2011, market-based mortgage loans increased from LE300 million to LE4.5 billion, according to a 2013 World Bank report, while the number of mortgage finance companies rose from two to 12. Bank lending for mortgages rose from LE12 million in 2006 to LE2.6 billion in 2011.

Still, mortgage financing has not been widely accessible due to the strict requirements that qualify customers for bank loans, necessitating a large down payment as well as high interest rates that make monthly installments unfeasible for low and middle-income brackets.

The fact that only 10 percent of Egypt’s population is banked remains another obstacle to expanding the mortgage finance base.

Although over 80 percent of households are in the low income sector, the highest shortfall of affordable housing in the region is in Egypt, according to a 2011 study on affordable housing in the MENA region by John Lang Lasalle.

There is a shortage of around 1.5 million affordable housing units across the country, the study found, and “the majority of those seeking affordable housing are low-income local citizens, with only low levels of expatriate demand.”

Despite this, much of the country’s real estate development over the past decade has been geared towards upscale property, which has driven the horizontal urban sprawl to the outskirts of Cairo. Meanwhile, many housing units in poorly planned buildings inside the capital remain empty.

There had been at least a verbal push for the development of low and middle-income housing when the property sector was booming, but little practical work was carried out on the ground. The gap presents a challenge for the government, but also a significant potential for development and market expansion on the part of real estate companies.

Also on Monday, after meeting with newly appointed Prime Minister Ibrahim Mehleb, Ramez said that Egypt’s foreign reserves have increased, adding that the latest figures would be announced soon.

In January, foreign reserves increased for the first time in five months to reach US$17.1 billion, a rise of US$73 million from December’s US$17.031 billion. In large part, the increase is due to financial support from Gulf States, including Saudi Arabia, Kuwait and the United Arab Emirates, amounting to US$12 billion in the form of aid, central bank deposits and fuel shipments.

Much of the funding for Egypt’s two stimulus packages is sourced from Gulf financial support, and a large portion of it is being invested in infrastructure and social projects.

With a wealth of experience running Arab Contractors, one of the largest construction companies in the region, Mehleb’s appointment as prime minister was seen as a positive indicator for investors, especially as Egypt plans to spend much of the stimulus package on financing major infrastructure projects.

It is estimated that at least 40 percent of Egypt’s population lives under the poverty line, and many reside in slums and informal areas with little or no access to potable water.

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