Egypt proposes mortgage law changes to boost home ownership

Financial watchdog suggests introducing a raft of lending products aimed at aspiring homeowners

Egypt's financial regulator has proposed changes to the mortgage law to allow remortgaging and higher borrowing levels for people on low incomes, in a drive to boost home ownership in the country of 83 million.
However, Ashraf el-Sharkawy, chairman of the Egyptian Financial Services Authority (EFSA), announcing the proposals on Wednesday, said that no changes could go ahead until they were approved by a yet-to-be-elected parliament to replace the one dissolved this year. No election date has been set.
Conservative lending rules and red tape have long been blamed for holding back development of the mortgage sector in Egypt. As well as helping more people to buy their own home, particularly poorer Egyptians, economists say a more active mortgage industry would boost the economy.
Mortgage lending is equivalent to less than half a per cent of gross domestic product (GDP) in Egypt, compared to 13 per cent in Morocco, according to a 2011 report on Africa housing by FinMark Trust, a body mainly funded by British government aid.
Mortgage lending in Britain, by comparison, is equivalent to about 80 per cent of GDP.
"The mortgage finance industry needs a push in Egypt," Sharkawy told a Euromoney conference in Cairo.
"Now it is time to change this law to add new instruments: remortgage, refinance your mortgage, equity finance and other types of finance like murabaha finance," he said, referring to the Islamic financial instrument "murabaha".
He said one change to the law proposed by EFSA involved increasing the amount that those on low incomes could borrow, raising the value of installments they could pay each month to 40 per cent of their salary, up from 25 per cent.
"Because of the (property) price increase this 25 per cent cannot buy a small flat," he said. "So we are suggesting to have it up to 40 per cent."
The shortfall in affordable housing in Egypt is the highest in the Middle East and North Africa region at 1.5 million units, followed by Iraq at 1 million and Morocco at 600,000, according to a 2011 report by property firm Jones Lang LaSalle.
The report also said that 80 per cent of Egyptians fell into the low-income sector.
The government is seeking to revive the economy and improve the lives of poorer sections of society who complained of being left out during economic liberalisation under ousted leader Hosni Mubarak.
But, highlighting a deadlock in policy action that is frustrating investors in Egypt, Sharkawy said the changes to the mortgage law needed approval by a parliament that has yet to be elected. He said the draft changes had been sent to the cabinet four months ago.
The lower house of parliament, elected earlier this year, was dissolved based on a court order that declared the vote violated the constitution. But new elections will not be held until a new constitution, still being drafted, is written.