Egypt ’ s New Mortgage Legislations : The Good , the Bad and the Ugly
Buying a new home is one of the biggest decisions an individual will have to make in a lifetime , especially that this type of investment doesn ’ t come cheap . Regardless of how big or small a unit is , every potential homeowner is plagued with the very same question , “ How do I finance it ?” And while real estate developers offer different interest free payment plans over a maximum of 8 years , the hefty down payment , maintenance fees and monthly installments are not easily affordable .
Moreover most new property developers cater primarily to the more luxurious needs of Egypt ’ s upper crust thus middle to low income individuals find the cost of owning a home far beyond their financial reach .
Can Mortgage Financing be the Solution ?
Mortgage financing which allows house payments to be made over a long term period of time of up to 20 years , was first introduced in Egypt in 2001 however it was not a concept that quickly caught on for numerous reasons . Two of the biggest contributing factors that hindered its initial appeal was a cultural factor since Egyptians , mostly a cash based society were not accustomed of the idea of taking out a loan for a house and secondly was the high interest rate of 15 %. Surprisingly enough despite its slow progress , there has been a considerable amount issued in mortgage loans since 2004 of around LE 4.5 billion .
With these concerns in mind the Central Bank of Egypt introduced a financing initiative with revised terms and lower interest rates for mortgage financing in 2014 . This initiative only targeted middle-income households , with a monthly income of LE 8,000 for an individual or LE 10,000 for the entire household and a maximum unit price of LE 500,000 . Today , it has revised its regulations even further to include two new income bracket groups . The initiative now allows those with a monthly income of less than LE1,400 to benefit from taking out a mortgage at a modest flat rate of 3.2 %.
The second group belong to a category slightly above the middle income and are referred to as the “ Premium Middle Income ” with a higher flat rate of 6.2 % for individuals with a monthly income of LE 15,000 or a household income of LE 20,000 and a maximum price of LE 950,000 per unit .
By adding these new segments , the Central Bank hopes to prompt real estate developers to consider more affordable projects especially with the rise of a new market that will have the means to finance these new homes .
The initiative which aims to lessen the financial burden on buyers also aims to instill confidence in banks to issue loans to these individuals by running complete credit checks on their behalf .
And while these new legislations are greeted with a warm welcome by potential homebuyers they do however , stipulate quite a few conditions to conform to . The age bracket for an individual with a proven source of income must be between 21 and 60 and the property must be legally approved by the lending bank . The unit must be complete , not under construction and with gas and electricity running . Moreover property located outside any of the “ new cities ” such as New Cairo , 6th of October , Shorouk , New Heliopolis , Badr or Obour , must be eligible for registration at the Real Estate Registry .
“ I was very excited at first when I heard about the possibility of a long term payment plan ”, says Ahmed El Qusi who is a middle income husband and father of two , “ However when I discovered how difficult it was to find a unit that complies to all the requirements , I eventually gave up on the idea . First of all it is very difficult to find an apartment in a completely finished building that has electricity and gas both , of which are mandatory conditions for unit eligibility , at an affordable price .
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