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A seminar to amend some provisions of Mortgage Finance Law and apply integrated financial solvency standards for mortgage finance companies

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• Dr. Omran: Increasing the maximum percentage of financing granted for residential purposes to 15% instead of 10% of the net property rights of the real estate finance company
• Dr. Omran: FRA approves a proposal to establish a “real estate guarantee registry”
• Dr. Omran: In order for the finance company to combine more than one financing activity, we need to amend financial solvency standards for real estate financing activity to be in line with the amendments stated in financial solvency standards for financial leasing and factoring activities

Dr. Mohammed Omran – FRA’s  Chairman confirmed that amendments to the financing value  granted for residential purposes  increased to a maximum of 15% instead of 10% of the net property rights of the real estate finance company for the natural person, his wife and minor children. That is besides  increasing the maximum for non-residential purposes to 30 % Instead of 20% of the net property rights of the real estate finance company for a natural person, his spouse and minor children, or a single legal person and the parties associated with him. These amendments came in response to a proposal from the Egyptian Real Estate Finance Federation to support mortgage finance companies in order to extend the base of customers eligible for high-value financing. In addition, the said amendments issued in line with FRA’s reports indicating that real estate units with an area greater than 86 sqm account for the highest percentage of financing.  These units accounted for about 85.69% of real estate financing in the second quarter (Q2) of 2020, due to the state’s expansion in purchasing units belonging to both the Ministry of Housing and the Urban Communities Authority and other social housing projects. Also, the reports indicated that the percentage of investors in the same area category was 93.16% for the same period in 2019.

This came during the inauguration of the Authority’s Chairman of the seminar activities hosted by FRA- at its headquarters in the Smart Village – to present integrated solvency standards for real estate finance companies and to review views on proposed amendments to some provisions of Mortgage Finance Law. The seminar was attended by May Abdel Hamid, CEO of Social Housing and Mortgage Finance Fund (SHMFF), Nagy Fahmy, Chairman of the Egyptian Union of Real Estate Finance, members of the Real Estate Finance Advisory Committee, as well as officials and Heads of mortgage companies.

Dr. Omran said that the Authority called for this meeting to ensure the efficiency of real estate finance activity and to preserve the capacity and capabilities of the 14 real estate finance companies and refinance companies with a total of issued capital amounted to about 2384.5 million pounds by the end of the second quarter of 2020. At the same time, preparing the real estate finance activity to be in line with the amendments made to the financial solvency standards for the financial leasing and factoring activities, in preparation for building a unified format that allows financing companies to combine more than one financing activity.

Dr. Omran said that FRA has sought to complete the financial solvency standards for mortgage finance companies. He added that companies will not be allowed to borrow more than ten-fold of their financial capabilities and that this percentage should not exceed 25-fold of their equity for mortgage refinancing companies.

According to Dr. Omran, an amendment to the financial solvency standards comes to focus attention on managing the risks faced by companies licensed to practice the real estate finance activity, strengthen their ability to hedge against credit and operational risks and maintain at all times the minimum capital adequacy standard represented by the financial solvency ratio. Also,  it must not be less than (12%) to be calculated between the elements of  capital base and assets weighted by risk plus a margin for operational risk coverage. On the other hand, companies shall abide by the liquidity standard so that the percentage of liquid funds, certificates of deposit and savings certificates , Government treasury bills, money market fund and debt funds shall be  (10%) of current obligations.

On the other hand, Dr. Omran said that the Authority has approved the proposals received from the Real Estate Finance Advisory Committee and the Egyptian Real Estate Finance Federation on amending some provisions of the Mortgage Finance Law. Proposals will be presented to the Authority’s Board of Directors – at its closest meeting – after the Authority has expressed its initial approval to create a “real estate guarantee registry”at FRA. Then, the real estate security rights will be publicized and any amendment or write-off that is made to them that is besides obligating financing parties to record the financing agreement in the aforementioned register after its date is recorded in the real estate registry. Thus, all essential data of the financing agreement are confined to the Authority as the regulatory entity that govern the activity. Such step will prevent any manipulation of these data and formalize the real estate financing agreement, especially if it has not yet been registered in the real estate registry. In this respect, the rights of all parties and the data will be protected.

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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