Managing Director and Vice Chairperson of Al Taamir Mortgage Finance – AlOula, Ayman Abdel Hamid, said that higher interest rates would decrease demand on mortgage financing due to increase in finance cost.
Commenting on increasing interest rate by 8% since March to December 2022 and its effect on mortgage financing interest rate, Abdel Hamid told Daily New Egypt that that a 1% increase in financing costs equals 6-10% of the financing value obtained by the customer over 10 years, which in turn will lead to decrease mortgage financing provided to clients.
He pointed out that the decline in mortgage financing will not reach the decline rates in 2014, explaining that by the end of last September, the volume of mortgage financing granted during the first nine months of last year amounted to EGP 12bn of which less than EGP 1bn were the state’s mortgage financing initiatives.
He added, “If there is a decline, it may reach 10%, and the most affected by the high interest rate on mortgages are low-income people.”
Abdel Hamid pointed out that the company is currently working on providing three mortgage-financing products to customers, namely lease to own, and refinance (sell to lease) and the third product is portfolio acquisition (buy portfolios of properties from real estate developers). Developers prefer to sell portfolios to mortgage companies rather than resorting to banks because in the case of selling portfolios to banks, the borrowing is on the guarantee of customer’s checks for the developer, and the developer is the same as the debtor with the bank and not the customer. In contrast, in the case of selling real estate portfolios to mortgage finance companies, the borrower in this case is the customer and not the developer because the latter sold the portfolio to mortgage finance companies. In addition, mortgage finance companies are faster in procedures for purchasing real estate portfolios, as well as providing longer periods for the developer of up to 10 years.
Financing individual not conditioning registering the unit in Egypt’s Real Estate Registration Department, however, mortgage law amendments allowed mortgage financier to own the unit to lease or selling it through mortgage financing system, he elaborated
As one of the largest mortgage companies in Egypt and has the largest equity in mortgage financing system in the country, Al Oula can provide clients with the largest amount of mortgage finance according to Financial Regulatory Authority’s (FRA) decision stated that the maximum financing for individuals represents 15% of equity, and companies 30% of equity. The company’s equity is close to EGP 1bn, and thus we can provide financing to the client up to EGP 150m, Abdel Hamid explained.
Regarding the duration of providing mortgage to clients, Abdel Hamid commented that if a customer submitted all papers in full, he would be granted the amount of mortgage financing within 3 to 5 days, unlike some companies that take months to grant financing to customers.
He disclosed that the company has achieved EGP 2.25bn in mortgage financing last year, however due to current economic circumstances, the company eyes recording EGP 1.6bn in financing in 2023.
Investing in property remains the best type of investment vessels in Egypt and depends on the amount of money and period of investments. In other meaning, if a citizen would like to invest a small amount of money, he might invest in gold or other short-term investment but if he would like to invest a large amount of money on a long-term investment, he should buy properties because real estate is a true store of value.
He elaborated that the FRA’s decision to increase the value of mortgage finance installment to 50% of the total income instead of 35-40%, would overcome higher inflation rates, which required changing the rules regulating non-banking financial activities to ensure the continuity of its important role in helping individuals, and institutions meet their financing and investment needs.
He highlighted that Al Oula provides mortgage financing to foreigners as well, so if he is a resident of Egypt, he is treated as a citizen in submitting income documents documented by his embassy inside Egypt. Abdel Hamid stressed that the guarantee provided by foreign client is the residential unit itself.
He further added, “We plan to increase foreign clients for the company to encourage property export in line with the state’s efforts to export real estate. This could be done through increasing cooperation with developers who have a good foreign client base.”
Regarding the government’s decision to reduce the subsidised financing tranche allocated within the mortgage financing initiative for the middle-income segment at an 8% interest rate on a decreasing basis to EGP 15bn instead of EGP 50bn, Abdel Hamid noted that no official correspondence has been sent from any party stating that mortgage financing will not continue for citizens.
He called for easing procedures for clients to facilitate obtaining mortgage finance and accelerating funding approval time. Besides, providing mortgage to off-plan units and this could be done through creating an independent entity to supervise and regulate the tripartite relationship between developer, client and financier. This entity has the right to supervise and penalize any delays in delivering units, put fines on clients who delay in paying installments as well as supervising financiers if he commits to pay mortgage funds or not, if not the entity has the right to replace this financer with another one.
He concluded, “Al Oula has 36,000 clients out of them 31,000 middle-income and low-income clients, 3,000 individual clients, and 2,000 clients of portfolio acquisitions. In 2022, we planned to achieve EGP 1.4bn in mortgage finance with EGP 99m in profits; nevertheless, we have achieved EGP 2.25bn of mortgage financing for clients with profit worth EGP 127m.”