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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Last-minute legal wrangles
By Gamal Essam El-DinThe government surprised commentators last week by submitting two draft laws aimed at pulling the real estate market out of its current recession and accelerating the flow of direct investments. Both are scheduled to be debated before the current Assembly ends its final session on 5 June.
The first bill, the Housing Mortgage Law, in preparation for some time, purports to encourage banks, insurance companies and mutual funds to extend house purchase loans, particularly to those on limited incomes. The bill also aims at encouraging investors to set up companies with the express purpose of extending housing loans. But it stipulates that the paid-up capital of such a company should be no less than LE20 million.
Following cabinet approval of the bill, Prime Minister Atef Ebeid announced that the Housing Mortgage Law would give young people a "good opportunity" to acquire a reasonable housing unit in a short period of time. "Young people, especially those on limited incomes, now have to wait for a long time in order to acquire the savings needed to buy a flat. Now, regardless of how much their monthly income may be, this bill will assist them in buying a reasonable flat in a short period of time," Ebeid said.
The housing loans included in the new bill will be directed not only to persons wishing to buy flats, but also to large construction projects which aim at developing new housing communities.
According to Abdallah Tayel, chairman of the People's Assembly Economic Affairs Committee, the Housing Mortgage Law constitutes a "major step" towards solving the housing crisis. "At the moment," he said, "affordable housing loans are extended only by the Egyptian Arab Land Bank and housing cooperatives. Commercial banks involved in providing housing loans do so only at high interest -- 16 per cent -- and over a short period, usually ranging from three to five years," said Tayel.
Although according to the new bill, loans will still carry a high interest rate, ranging from 14 to 16 per cent, says Tayel, they will be paid back over a time period ranging between 25 years to 40 years. This is reasonable for many classes since it will enable them to buy a good flat without incurring insupportable financial burdens," said Tayel.
Previous attempts to pass bills with the objective of extending loans for housing have been presented to the Assembly but failed to overcome a number of obstacles. Three years ago, Tayel said, an amendment to the 1957 Banking and Credit Law no163 was submitted to allow banks extend loans to limited-income citizens. It floundered because it sought to use the house itself as collateral, a violation of article 1052 of the civil law banning any form of confiscation of mortgaged public or private housing units.
To redress this legislative obstacle, the current bill states that in case of the buyer defaulting, the mortgaged house will be sold at a public auction under judiciary supervision. The lending bank will be allowed to participate in the auctioning process to push the selling price to the highest level.
The draft law includes a provision that allows banks and housing mortgage companies to issue housing bonds in order to raise funds. "These bonds could play a very vital role in stimulating the stock market. Housing bonds account for at least 70 per cent of the financial securities negotiated on the stock markets of several countries," said Tayel.
Several housing experts, however, have expressed reservations over the new housing bill. Many experts were surprised that the long-awaited bill will be discussed in the People's Assembly as it nears the end of its session. MPs, they argue, will have neither the time nor enthusiasm required to discuss the law in depth.
Experts also differ over the stipulation that designated housing mortgage companies should have a paid-up capital of at least LE20 million. According to Tayel, a minimum level of capitalisation is essential to ensure the funding companies can meet their commitments. They should not, though, be allowed, he argues, to receive personal deposits for the purpose of investing in housing activities and should be put under the direct supervision of the Central Bank.
Alaa El-Awsiya, chairman of the Egyptian Arab Land Bank, argued that the housing mortgage companies, regardless of how much their paid-up capital is, will never be able to compete with the banking sector in providing mortgages. The best option, he said, is to raise the paid-up capital of the Egyptian Arab Land Bank so that it can play a larger role in providing housing loans to a larger cross-section of citizens .
The second bill submitted for debate seeks to amend the Investment Guarantees and Incentives Law. Since it was passed in May 1997 the law has been subjected to increasing criticism from investors, unanimous in the belief that the law's list of incentives precludes vital businesses and activities in the tourism and construction sectors.
In his public announcement last week, the prime minister explained that President Mubarak had approved amending the Investment Incentives and Guarantees Law to include, among other modifications, exemption on revenues of buildings established by companies for residential purposes from the five per cent real estate tax. Equipment and machines imported by companies, whether whole or in components, will also be exempted from custom duties as long as they are used to expand productive activities. Companies located in the new industrial and housing communities, and Social Development Fund-sponsored projects, will also find new investments exempted for ten years from the Commercial and Industrial Profits Tax.
The government also submitted a draft law transforming the Egyptian Electricity Authority into a joint stock holding company in preparation for privatisation.
