Drawing a line in the sand

As with any overseas property market there are often hurdles along the way that prevent it from reaching its full potential.  Typically mortgage finance is one of those hurdles and moves are afoot to allow the Egyptian property market to overcome this hurdle and realise its true potential.

Mortgages are available in Egypt however they are difficult to obtain.  This is mainly to do with lack of awareness of their availability and prior to the credit crunch, lack of demand.   The majority of properties are 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 longer payment terms and are looking to borrow to purchase their property and use a smaller deposit so as not to tie up all of their money.  


One of the major sticking points to getting a mortgage in Egypt hinges on whether the property is registered or eligible to be registered with the Land Registry.   The legal process to acquire permission to build a property and officially 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 officially registered.  This process is further complicated on properties that are on the Sinai peninsula as this land is leasehold land (Usufruct) and has its own set of restrictions.   However the Ministry of Housing in Egypt realise that to increase buyer confidence and increase residential tourism numbers, this process has to be speeded up so that buyers will have proof of title over the property they have bought and in turn this will increase the appeal to foreign investors.  

To register the property the developer must be able to provide a copy of the registered contract (Registered and Accepted by the Registration Office or ready to be registered), a copy of the construction license and confirmation that the taxes on the property have been paid.   Before any of this can happen the developer must have got their development approved for mortgage finance by a bank.   In the majority of cases where a client requires a mortgage to complete their purchase it’s highly likely that they will not be able to obtain a mortgage, as the development hasn’t been approved for mortgage finance.

So to meet the demands of the client, the developers will need to adopt new business practices.  Overseas Mortgage Broker (OMB) are currently working to provide developers with a one stop shop for getting their developments through the due diligence and approved for mortgage finance and thus making their property offering more attractive to clients who require finance to purchase.   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 the banks due diligence then 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.

Working with the Egyptian banking community, OMB will look to increase awareness and provide clients with greater access to funding and a wider choice of products.  This in turn will provide competition within the mortgage market there.

Qualifying for a mortgage

When a development is eligible for mortgage finance then Egyptian lenders will require proof of income via payslips or tax returns and the clients monthly debt payments including the new mortgage must not exceed 40% of the client’s net monthly income.  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 have a clean credit record.  Very few lenders will lend on off plan property unless it is one of their own bank backed developments with the majority of lends either happy to lend on a property that has the outer shell prior to the final fittings or on the finished property.  Again if a prospective client can see that mortgages will be available upon completion and based on their current circumstances that they would qualify for a mortgage then this can hopefully overcome that particular sales objection.


The way forward


Change is coming to the Egyptian property market and a line in the sand is about to be crossed which will be beneficial to all parties with a vested interest in the property market of such a beautiful and historic country.  This change will need to be industry lead by the Egyptian government, developers, banks and OMB, which by working together can ensure that the Egyptian property industry sets high standards and provides clients with piece of mind when buying property.
For developers this means getting their developments approved for finance and eligible to be registered.  For clients this will mean a safer buying process.  They should get independent legal advice and ensure any contracts are checked over thoroughly before committing to buy.  They should satisfy themselves that the development will be eligible to be registered and eligible for a mortgage. 
They can then sit back, relax and soak up the sun.