Home economics: The government has launched a number of initiatives to offer mortgage financing to low- and middle-income households


Egypt’s economic reforms, such as the flotation of the pound in late 2016, the reduction of fuel subsidies and the wave of inflation that followed, have broadly affected household purchasing power in recent years. In turn, this has caused a fall in demand for real estate and impacted the sector’s overall performance. This has been compounded by the outbreak of Covid-19 in early 2020, which has led to a further slowdown in demand.

The most common means of developer financing, using off-plan sales – in which units are sold to buyers before they have been built, with extended payment terms and flexible down payments – were facing difficulties even prior to the pandemic. This financing model partially ties up the developer’s liquidity unless they seek debt securitisation or find other ways to relinquish the debts. Consequently, this model put pressure on the progress of projects, the speed at which they were delivered and their expansion plans. Moreover, off-plan sales only benefit higher-income buyers who are able to pay the full amount of a unit’s value in cash.

Financing Mechanisms

In light of this, there has been a growing need for affordable mortgage finance mechanisms to support consumers’ weakened purchasing power. In an effort to support interest rates and increase the value of cash in the market, the Central Bank of Egypt (CBE) has established a number of such initiatives. These have been particularly directed towards low and middle-income households – the segments that account for the largest share of market demand.

In 2014 the CBE launched the Social Housing and Mortgage Finance Fund (SHMFF), a LE10bn ($616.3m) initiative offering long-term financing for up to 20 years, with an interest rate of 5-7% for low-income households and 8% for middle-income households. The central bank subsequently extended the programme to include an upper-middle category with an interest rate of 10.5%. In 2017 the CBE allocated an additional LE10bn ($616.3m) to the fund. As of October 2019, 29 banks and mortgage companies had helped fund housing for 275,000 families, at a total value of LE27bn ($1.7bn) and a subsidised cost of LE4.3bn ($265m), according to an official statement issued by Mai Abdel Hamid, CEO of the SHMFF.

In 2019 a new LE50bn ($3.1bn) fund was launched to supply middle-income households with loans at an interest rate of 10% and repayment terms of up to 20 years. The programme is designed to support the real estate sector and encourage job creation and economic growth. Additionally, in October 2019 the Industrial Development Bank announced plans to increase the financing offered to low-income households from LE1bn ($61.6m) to LE1.5bn ($92.4m).

Stimulating Growth

These initiatives have helped to boost the mortgage sector, which has expanded considerably in recent years. In 2019 the total volume of accumulated mortgage finance activity reached LE11.5bn ($708.7m), up from LE4.8bn ($295.8m) in 2014 and LE500,000 ($30,800) in 2009. In April 2020 the Financial Regulatory Authority reported that in January that year mortgage financing firms provided funds worth LE168.5m ($10.4m), up 46.6% year-on-year from LE114.9m ($7.1m).

However, the mortgage sector still has a low penetration rate, at 3% of the population, with the total value of mortgages comprising 0.36% of GDP as of 2019. In comparison, the global average stands at around 60-80% of GDP. The majority of purchases are still made using cash rather than credit.

Although the outbreak of Covid-19 is likely to result in slower growth across the real estate sector in the near term, as the population continues to rise, mortgage financing initiatives are expected to stimulate demand in the medium to long term. Expanding mortgage financing will also contribute to improving living standards and developing the money market.