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Al-Ahram Weekly 20 - 26 April 2000 Issue No. 478 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 20 - 26 April 2000 Issue No. 478
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Heritage Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters A house of cards
By Aziza SamiConstruction and real estate stocks surged last week following news that the cabinet had approved the draft mortgage law in preparation for its review by the People's Assembly.
The law allows the banking sector to extend loans for the purchase of housing units under a mortgage system for the first time.
But while it may resolve individual's funding problems, the mortgage law alone is unlikely to resolve discrepancies in Egypt's real estate market which is characterised by an over abundance of property at the top-end of the market and a vast, unmet demand for lower-middle housing.
The government covers only 25 per cent of market demand for low cost housing. The remaining 75 per cent will be met, it is optimistically hoped, by the private sector, which is expected to turn its attention away from the luxury end of the market and focus on the requirements of low and middle income groups.
The draft law states that interest rates on mortgages will be fixed in a contract signed during the final stages of the transaction, though it fails to specify, or give any details, of the mechanisms that will need to be in place before banks will be willing to lend at an interest rate affordable to low income groups. Interest is currently charged at around 18 per cent on personal loans, a figure that will have to be cut by almost two thirds if the scheme is to have any hope at all of getting off the ground.
The banking sector is expected to be the prime source of funding in the mortgage system, though currently there is only one real estate bank, the Egyptian Arab Real Estate Bank. The bulk of lending, therefore, will presumably be left to the commercial and investment banks, neither of which has any experience in the real estate sector, save the negative legacy of millions of pounds in bad debts extended to real estate construction companies. And while the Ministry of Economy says that it will oversee the establishment of "specialised non-banking mortgage companies" a more logical conclusion would be the formation of real estate banks within the already well-established banking sector, to be supervised by the Central Bank.
The law, if it is approved by parliament, will come into force by the end of this year at the latest. So far, though, the necessary reforms in social insurance -- what happens, for instance, should the main breadwinner die, or be prevented from working for a long period owing to illness? -- have yet to be addressed.
More difficult, still, is likely to be instilling the required "real estate culture." Up until now investors in real estate have proved themselves incapable of seeing beyond the end of their noses. Short term profit governs the majority of investment decisions, with little if any attention being paid to long term planning.
The result of this short-sightedness is a preponderance of luxury homes, with investors falling over themselves to build yet more villas in the LE1-3 million range, often without infrastructure or services and, equally often, without buyers.
That millions of pounds in bank loans and expatriate remittances have been poured into the building of luxury communities is attested to by the mile after mile of touristic villages that lie empty along Egypt's beaches.
The mortgage law itself is incapable of resuscitating the real estate market, nor will it set its priorities straight. The real estate developer who constructs an affordable project, with its maintenance and future operation clearly defined, has yet to appear on the scene. And until investors whose main profession is real estate -- not, as now, businessmen resorting to real estate construction solely as a means of diversifying their portfolios -- appear, the property market will continue in its current state of chaos. And no mortgage law can change that.
