Central Bank of Egypt initiative: Towards affordable housing for all

Al-Ahram Weekly reports on a new real estate initiative targeted at people on low and middle incomes

The Central Bank of Egypt (CBE) launched a new real estate initiative targeting low- and middle-income individuals this week.

The presidential initiative, announced on Sunday, will enable such people to buy their own residential units thanks to loans extending for 30 years at an interest rate of three per cent.

Full details of the initiative have yet to be revealed, but Mahmoud Gad, a real-estate analyst with Arab African International Securities, said that “this is the longest-term initiative with the lowest interest rate ever launched by the CBE in the real estate financing sector.”

It would alleviate the burden on buyers who previously had not been able to afford the instalments of the earlier CBE real-estate financing initiative, he added.

The CBE has allocated LE100 billion to the new initiative, Gamal Negm, deputy governor of the CBE, said on television on Tuesday.

He added that the price for a residential apartment within the new real estate financing initiative must be between LE350,000 and LE1 million. The new initiative will be implemented alongside a 2019 real estate financing initiative whose interest rate stands at eight per cent.

Alaa Fekri, a member of the board of the Real Estate Investment Division at the Federation of Egyptian Chambers of Commerce, said that the terms of the new initiative would make it a success and reflect positively on the real estate market, provided that procedures were not complicated.

He added that the 30-year instalments and three per cent interest rates would make the monthly instalments affordable for buyers. The CBE has stipulated that the instalments should not exceed 40 per cent of the purchaser’s income, Fekri stated.

In December 2019, the CBE allocated LE50 billion to a real estate financing initiative for middle-income individuals. Under that initiative, the banks provided customers with loans at an interest rate of 10 per cent, later lowered to eight per cent, on instalments extending for 20 years.

Over the past two years, interest rates have been on a downward trend. At its February meeting, the CBE’s Monetary Policy Committee (MPC) kept the overnight deposit rate, overnight lending rate, and main operations rate unchanged at 8.25 per cent, 9.25 per cent, and 8.75 per cent, respectively.

The 2019 initiative stipulated that an individual’s monthly income should not exceed LE40,000. It stated that the loan should not be more than LE2.25 million, that a customer could only purchase one residential unit, that the apartment bought should be fully finished and ready for delivery, that the down payment should not be less than 20 per cent of the total, and that the apartment should not be bigger than 150 square metres.

The initiative also stated that loans made under it could be used for registered units, apartments that could be registered, and units in new urban communities nationwide.

The CBE programme identified middle-income individuals as those with monthly incomes ranging between LE4,200 and LE40,000, while middle-income families were those with monthly incomes falling between LE4,700 and LE50,000.

Gad is hopeful that the new initiative will reinvigorate the secondary market by mid-year and positively affect the building materials market starting early next year.

Egypt’s real estate sector has suffered owing to the coronavirus pandemic. Anticipated growth rates were not achieved, and companies’ profits declined.

A number of analysts expect the sector to perform better by mid-2021, in tandem with the termination of the one-year 15 per cent certificates offered by the National Bank of Egypt and Banque Misr, the decreasing interest rates at the banks, and the return of expatriates from abroad.

Abanoub Magdi, a banking analyst with Beltone, an investment bank, concurred. More people would be encouraged to join the initiative and the real estate market would be rejuvenated, he said, adding that it would also encourage real estate companies to construct new projects after the available ones are sold.