Research on the Mortgage Industry in Egypt

The history of the mortgage system in Egypt is short and not so sweet.  A new mortgage law that passed in 2001 created hope for an increase in homeownership and its associated economic and societal benefits. In its mere 16 years history, mortgage finance has fought to succeed through Egypt’s incredible structural challenges, societal resistance (including a significant number of people who believe that it does not comply with Sharia Law because of the issue of charging interest), economic upheaval, revolutions, and military coups. Because of those challenges, the system has completely different goals than it did when it first appeared in 2001, but knowing what the mortgage system had to go through to get to where it is today is essential when looking at where it could go in the future.  In this paper I will address the initial goals of the Egyptian mortgage system, the challenges the new industry faced in its creation, how the government addressed those challenges and what industry participants did to reach their goals, how the financial crisis of 2008 and the Arab Spring affected the mortgage system in their own ways, and where the mortgage system is today.

HISTORY

Reliable homeownership statistics are hard to find in Egypt since it is estimated that over 90% of the housing units in the country are in the “informal” sector; however, consensus puts it at less than half that of the United States and the lowest among the developed countries of Africa and the Middle East North Africa (MINA) region at the time of the passage of the 2001 mortgage law.[1]  The lack of a developed mortgage system meant that those wanting to own homes had to pay cash or fund extremely large down payments from their savings, and hope to find a developer who would provide a unit that could be paid off in 2-4 years. Mortgages were extremely rare, and banks that did them had no regulatory framework for making the loans and often were unable to foreclose them if the borrower failed to make payments.  The housing units in the informal sectors were not legally “registered” as properties and therefore could not be financed at all.  Without registration, it was impossible to prove who owned a particular property, and therefore impossible to enforce a mortgage. The last time Egypt had reliable, affordable property registration was before the revolution of 1952, when the British system was still in place.  Ahmed Marashly, the former Deputy Director of the Egyptian Financial Supervisory Authority and current Head of Corporate Governance at Multinational UAE Islamic Bank, quipped that “Administrative functions in Egypt really fell apart after the British left (in 1952).  Egyptians are hard workers, and we are smart, but we need someone to tell us what to do.  We need a good conqueror every once in a while to organize things for us.”[2]

Production of housing units before the mortgage law was far outstripped by demand.  With over 50% of the population between the ages of 15 and 40, marriages were common, leading to huge demand for new and affordable housing units.[3] Much of the new housing being built was in the so-called “New Cities” and the units there were not affordable to 98% of Egyptians.  So, there was a mismatch: too many high end units with not enough buyers and too many buyers for the available affordable units.  The one thing that was also missing was a significant middle class available to purchase housing units.

A team consisting of the Ministry of Justice, the Ministry of Investment and the Central Bank of Egypt, along with technical assistance from Europe and USAID came together in the late 1990’s and spent over a decade launching the mortgage industry in Egypt, hoping to increase the standard of living of all Egyptians through a vibrant housing market spurred by an efficient mortgage finance industry.

Unfortunately, with all the changes that came about in egypt since these goals were first established, these original hopes for the mortgage industry in Egypt were never fulfilled.

[1] Everhart, Stephen, Berta Heybey, and Patrick Carleton. “Egypt: Overview of the Housing Sector.” Housing Finance International (2006): n. pag. Housing Finance International, June 2006. Web.

[2] Marashly, Ahmed. Email interview. 10 Apr. 2017.

[3] “Egypt Sees Sustained Demand in Residential, Commercial and Retail Space.” Oxford Business Group. N.p., 11 Apr. 2017. Web. 12 May 2017.

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