LE 500 million capital venture to provide ‘Sharia-compliant’ financing
CAIRO: An Egyptian-Gulf consortium led by the United Arab Emirates Amlak Finance (AF) has been licensed as the fourth mortgage finance company, the Mortgage Finance Authority (MFA) announced late Monday.
Amlak Finance and Real Estate Investments is due to open its Cairo office this month with LE 500 million in issued capital and LE 50 million in paid up capital. UAE s Emaar Properties established AF in 2000 as its in-house financing arm and now owns 45 percent of its shares.
According to an Amlak statement, the company will offer mortgage financing services under Sharia principles using products such as Istisna a, used to finance the construction of the borrower s home, and Ijarah Muntahia Bittamleek, a lease-to-buy mechanism. Bothconcepts are almost identical to conventional financing schemes, only the costs and profits are agreed upon in advance.
MFA Chairman Osama Saleh says the entrance of Amlak into the market, along with the expected launching of the Egyptian Company for Mortgage Refinancing (ECMR), is expected to make borrowing more accessible to middle and low-income groups.
Since Minister of Investment Mahmoud Moheiddin launched his campaign in mid-2005 to implement the inactive Mortgage Finance Law of 2001, total lending has reached LE 1 billion, up from just LE 15.8 million in June, 2005. Still, middle and low-income groups could not take advantage because of high interest rates, now in the 12 percent to 14percent range, and low caps on lending based on the borrower s monthly income.
Housing analysts agree the market needs more competition to become more borrower-friendly, but are unclear on how or when competition might be sparked.
We see the mortgage industry as the future of the country, says Coldwell Banker Operations Manager Lena Fawzy. And there s a general sense that interest rates will go down in the near future as demand increases for mortgage financing.
Amlak s launch comes one week after the People s Assembly Housing Committee has approved a LE 214 million loan from the World Bank to be pumped into the country s mortgage financing sector. According to the Ministry of Finance, the government will make the funds available to primary lending institutions represented in the four established mortgage finance companies.
According to an Amlak statement, the company sees potential for growth in Egypt s annual shortfall of 2.5 million housing units as the population continues to increase by approximately 1.5 million per year. The opening of the company s Cairo office represents its first expansion out of UAE, with further expansion planned in the Middle East in 2007.
The Ministry of Investment has toiled to activate the mortgage financing sector by helping pass legislation to lower property registration fees from 12 percent to 3 percent or a maximum of LE 2,000, and another to lower property taxes from 46 percent to 10 percent. Still, more than 80 percent of properties remain unregistered and the conduction of home financing remains a largely informal agreement between buyer and seller over a maximum of 7 years.
Moheiddin has vowed to introduce legislation restricting mortgage lending to approved institutions.