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TITLE INSURANCE ON THE HORIZON BY JOSEPH KRAUSS The beleaguered mortgage market, still mired in bureaucratic detritus despite the passing of landmark mortgage legislation in 2001, may soon receive a major boost with the creation of a new private sector title guaranty company headed by Stewart International. The US-based firm, which provides a wide range of land registration and title insurance services, could reinvigorate the local real estate market and bolster local and foreign investment by helping land and homeowners carve hundreds of thousands of titled properties out of Egypt’s vast and murky informal sector. As of press time, the company was on the verge of signing an agreement with Coldwell Banker Egypt to establish Egypt’s first title guaranty company. Other members include the Mansour-Maghraby Investment and Development Company, the Osman Group and the Olympic Group, each of which are expected to contribute financing and technical expertise. Those close to the deal remain tight-lipped about the exact details, but nearly everyone involved in the local real estate market says the move would go a long way towards addressing the problems faced by mortgage lenders and home buyers alike; primarily the fact that in Egypt more than 85 percent of all properties remain unregistered. “We have good inventory of property units in Egypt, we have liquid cash in banks to finance mortgages and we have buyers who are interested in these properties. The only thing that is missing is to put it all together,” says Ashraf Ghazaly, managing director of Coldwell Banker Egypt. The key to activating the mortgage market, Ghazaly and others say, is to reform the registration process, which at present offers few incentives for anyone to apply for a formal title. “We cannot execute the transactions because there is no updated registration for the bank lender to place collateral on the property.” Last month, the government tried again to address the problem by reducing registration fees to 3 percent of the property’s value. Prior to 2001, they were 12 percent. It isn’t yet clear whether homeowners will take the bait, but most industry experts expect more, especially where the system itself is concerned. Registering a home in Cairo can take six to eight months and, since the real estate market remains overwhelmingly cash-based, the public has been slow to catch on to the potential benefits. Meanwhile, the lack of reliable property titles has severely limited the ability of Egypt’s two primary mortgage providers, the Egyptian Housing Finance Company and Taamer Mortgage, to serve the market. The Nazif government has tried to address the problem, not only by lowering fees, but by bringing technocratic expertise to bear on the registration process itself. Shortly after last summer’s cabinet reshuffle, it appointed Sameh El-Torgoman to head the Mortgage Finance Authority, the real estate regulation arm of the Ministry of Investment. El-Torgoman, widely praised for reforming the Cairo & Alexandria Stock Exchanges during his seven years as chairman, is well regarded in the private sector. Since taking over last year, El-Torgoman has presided over the country’s first 16 mortgage contracts, worth nearly £E 3 million. And as head of the Guaranty & Subsidy Fund, which aids low-income home buyers, he has steered 300 contracts to the “final stage” of negotiations. “There is a plan, things are heading in the right direction, and the results will be very good,” he told Business Monthly. Many believe that the establishment of Stewart International could act as a catalyst for accelerating change. “They can take the registration management process and straighten out the records in one or two years, and then title guaranties become a lot easier for everyone,” says Ghazaly. Once Stewart International registers titles, it will provide both title search and title guaranty. The former allows banks to quickly and easily acquire title information, while the latter ensures that banks will not have to contest titles in court. “If there are future disputes about the ownership of the property, Stewart International will be providing guarantees to the lender,” Ghazaly explains, “which means that the bank will have less of a financial risk.” The development of a stable real estate market could allow homeowners
and banks alike to transform billions of dollars worth of land and
property into financial assets, which will invigorate the housing
market and increase the ability of people at all income levels to
buy and own homes. “You will be able to move a lot of the properties
that are at a standstill in the market right now because people
don’t have cash,” says Amira Shalaby, a consultant for
the Housing & Development Bank, a part owner of Taamer Mortgage.
“When you introduce mortgages it increases people’s buying
power. They can pay a down payment and then pay the rest in affordable
monthly installments.” The arrival of Stewart will also send a strong signal to foreign investors that the government is serious about eliminating bureaucratic impediments to doing business. “This will have a great impact on investment flowing into the country,” says Ghazaly. “People will be more comfortable that they can buy and register property on the spot, or at least in a reasonable time frame, and that if they want to sell, this will also be easy.” Mortgage holders, meanwhile, will be able to borrow on their investment or increase its value by restoring and enriching their property. “Right now, the real estate market is undertapped, undervalued and underdeveloped because of these legislative problems,” says Ghazaly, but “once these problems are straightened up, I see this industry as a catalyst for the economy to take a huge step forward.” Down the road, the establishment of a mortgage market may offer the opportunity for new financial instruments altogether. Once banks reach a point where they have enough real estate-based assets, specialized companies could translate them into mortgage-backed securities, offering yet another enticing way to invest in the country. “Stewart’s activities could help to bolster Egypt’s housing market and governmental efforts to deepen the mortgage markets,” Stewart International said in a statement to Business Monthly. “Clear and transparent property rights are a basic precondition to economic development. Further, the clear status of property rights increases foreign investment and, perhaps more importantly, promotes development of domestic secondary mortgage markets, which in the US constitute a strong motor for the national economy.” The entry of Stewart International, though certainly positive, is one of many steps that are needed for such developments to materialize. “The government has to be willing to work with Stewart to help solve the problem,” says Roderick Richards, chairman of the Egyptian Housing Finance Company. “It’s so big you need both the government and the private sector if you are going to get any traction. It’s not as though there is an overnight solution.” Before anything else, the government must seriously reform the registration process in order to get buyers to sign on. Richards suggests the government charge a flat fee, rather than demanding a percentage of the property value which would streamline the process and make for more fluid transactions. Coldwell Banker’s Ghazaly, on the other hand, believes the government should offer a special promotion such as a limited-time offer designed to encourage registration. “By doing so, the government would be able, later on, to tax these registered properties, and would know exactly what their property tax income should be. It will benefit the owner of the property, and it will benefit the government from a tax point of view.” El-Torgoman says the government, while welcoming the entry of big players such as Stewart International, is at the same time conducting its own investigation of the registration issue through a pilot project in Dokki aimed at pinpointing bottlenecks in the system. “They are looking at all the procedures necessary for registration and trying to cut out all the unnecessary ones. They want to make it a very simple and straightforward process,” he says, adding that results should be out this summer. In addition to encouraging registration, experts say the government
must also take steps to reassure lenders. Beginning with the “Big
Four” state-owned banks, the government should lay the groundwork
for the creation of a credit bureau – a centralized institution
that could pool bank records and provide a quick and reliable way
for lenders to check applicants’ credit history. At the same
time, Ghazaly says, the government should expedite the process of
repossession. “The mortgage law was very specific that repossession
should take place in a short and reasonable time, but the enforcement
body has to be there, whether it’s a special court or a law
enforcement group.” |
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