AUGUST 2010 |www.opp.org.uk WORDS | Kevin Macadam


THE EGYPT REPORT Mortgage column | 43 Developer profi le A line in the sand


As Egypt continues to attract overseas property buyers with a strong economy outside the Eurozone, the key question for many potential investors is “who will give me a mortgage?” Our regular mortgage columnist Kevin Macadam has the answers.


ake a look at any emerging overseas property market and you will see that there are often the same hurdles along the way, all designed to prevent it from reaching its full potential. Mortgage fi nance is one of those barriers ... a typical hurdle that can trip up a growing market again and again. But now, I am pleased to see that moves are afoot to allow the Egyptian property market to overcome this hurdle and realise its true potential. Mortgages are defi nitely available in Egypt. The problem is that they are diffi cult to obtain. This is mainly due to a lack of awareness and - prior to the credit crunch - a lack of demand. Far too little was known about the availability of Egyptian mortgage funds … or how to go about accessing them. The majority of properties are


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currently sold as cash purchases or via short-term payment plans offered by the developer. These short-term payment plans are typically over 2-3 years. However, in this post-credit crunch world, clients are looking for much longer repayment terms and they often want to borrow more than before to purchase their property. And virtually every buyer in the market today wants to use a smaller deposit.


One of the major sticking points is whether or not the property is registered (or is eligible to be registered) with the Egyptian Land Registry. The legal process to acquire permission to build a property - and to offi cially acquire the title deed to the land on which the property is to be built - has, in the past, required 77 bureaucratic procedures at 31 different agencies and could take anywhere between 6 and 11 years. This has


resulted in only 10% of properties in Egypt being offi cially registered. This process is further complicated if the property is located on the Sinai peninsula where the land is leasehold land (Usufruct) and where there is yet another set of restrictions. However, the Ministry of Housing in Egypt realises that if the country is


“ In the past 77 procedures at 31 different agencies could take between 6 and 11 years.”


going to increase buyer confi dence and grow its residential tourism numbers, this process has to be speeded up so that buyers will have proof of title over the property that they have bought. To register the property the


developer must be able to provide a copy of the registered contract (registered and accepted by the Registration Offi ce or ready to be registered), a copy of the construction licence and confi rmation that the taxes on the property have been paid. But before any of this can happen, the developer must also have got its development approved for mortgage fi nance by a bank.


In the majority of cases where a client requires a mortgage to complete their purchase it is highly likely that they will not be successful. Often, they won’t be able to


obtain a mortgage because the development hasn’t been approved for mortgage finance.


So … to meet the demands of their clients, Egyptian developers have had to adopt new business practices. Brokers like OMB are currently working to provide developers with a one-stop-shop for getting their


developments through the due diligence process and approved for mortgage fi nance. If this can be done quickly, it will make the property offering more attractive to clients who require fi nance prior to purchase.


Also, by getting the development signed off by more than one bank, this will widen the range of mortgage products available to the client. This will also give developers a competitive advantage because as a development passes through the bank’s due diligence process it adds a further level of kudos and security to the buyer as well as increasing the number of clients that can now hope to purchase. Everyone involved in the fi nance chain needs to work closely with the Egyptian banking community and help provide potential clients with greater access to funding and a wider choice of products.


It is all about trying to get more and more competition within the Egyptian mortgage market and stimulate demand.


Qualifying for a mortgage When a development is eligible for mortgage fi nance then Egyptian lenders will require proof of income via payslips or tax returns. Also, you


“Change needs to be led by the Egyptian government, developers, banks and brokers.”


will have to help provide evidence of the clients’ monthly debt repayment commitments.


These liabilities, including the new mortgage, must not exceed 40% of the client’s net monthly income ... or nothing will go ahead.


Mortgages can be taken in a choice


of currencies including US Dollars, Sterling, Euros and Egyptian Pounds. Loan to values are typically 60% to 65% and are available up to 80%, again dependent upon which bank has approved the development. Clients should also have a clean credit record.


And it is worth noting that very few lenders will go ahead on off-plan property unless it is one of their own bank-backed developments. Having said that, of course, the majority of lenders are happy to go ahead on a property that has its outer shell built.


The way forward


Change is coming to the Egyptian property market and a line in the sand is about to be crossed.


This change will need to be led


by a collaboration of the Egyptian government, developers, banks and mortgage brokers who have experience of the Egyptian scene (like OMB.) If everyone involved works together properly we can ensure that the Egyptian property industry sets high standards and provides clients with proper piece of mind when buying property.


For developers this means getting their developments approved for fi nance and eligible to be registered. For clients this will mean a safer buying process. And clients need to be able to satisfy themselves that the development will defi nitely be eligible to be registered and - as a consequence – be eligible for a mortgage.


Kevin Macadam will be chairing the “Mortgage environment today and forecasts for 2011” session at the OPP Live conference in London on Thursday October 14 2010 at 16.00. Come along and meet him.


EGYPTreport


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