Real estate financing initiative for the benefit of low- and middle-income people

Mr. Chairman of the Board of Directors
Bank

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Greetings,

The real estate sector is one of the most important indicators of a country's progress and growth due to its role in supporting the economy and driving the production engine. Advancing it has a positive impact on the national product through employing many industries and different sectors, most notably the contracting, construction, and building sectors, as well as other complementary activities. This is in addition to its positive impact on the social aspect by creating job opportunities in various projects and industries, alongside providing suitable housing according to citizens' needs and considering the social dimension.

In light of the above and given the central role of the banking apparatus in stimulating real estate financing, the Central Bank of Egypt has deemed it necessary to encourage and motivate banks to expand in this field, while directing them to focus on low- and middle-income groups. This is based on its sense of social responsibility, in addition to its economic role. This should be done through launching an initiative aimed at achieving structural reform in real estate financing by providing long-term financing at low yield rates to ensure appropriate support for the mentioned categories as follows:

Category
Low
Income
Middle
Income
	Rate
for
the
Mortgage
General
*
7%
8%

• Fixed rate since disbursement and throughout the loan period

Accordingly, the Board of Directors of the Central Bank of Egypt, in its meeting held on 18 February 2014, decided the following:

1. The Central Bank of Egypt allocates an amount of 10 billion Egyptian pounds in tranches for a maximum period of 20 years, to be directed to private real estate financing for low- and middle-income groups in housing projects in new urban communities. Banks shall re-lend it according to the following conditions:

   • Supported yield rates (calculated on a declining basis) shall be determined by the Executive Management of the Central Bank of Egypt.
   • The applied yield rates for customers shall not be changed after disbursement and throughout the loan period for the tranches that have been utilized.
   • The Executive Management of the Central Bank of Egypt has the right to review pricing for new tranches directed to banks according to market considerations, with a maximum frequency of once per year.
   • The amount shall be made available to banks against periodic renewal of Treasury bills or bonds.

2. Conditions for customers benefiting from the initiative:

   • The customer must be of Egyptian nationality.
   • The customer must have obtained real estate financing for only one unit.
   • The maximum monthly income for middle-income individuals shall be 8,000 pounds for an individual and 10,000 pounds for a family, and the value of the financed unit shall not exceed 300,000 pounds.
   • Compliance with the provisions of Law No. 148 of 2001 and its amendments regarding low-income individuals and the determinations of the Real Estate Financing Fund is required.

3. The total value of the support provided by the Central Bank of Egypt shall be refunded, taking into account prevailing market rates in case of selling the unit or early repayment of the loan before five years have passed from the disbursement date. In case of sale or early repayment after five years have passed, a percentage corresponding to the remaining period of the loan shall be calculated.

   1. Low-income individuals have the right to benefit from the Central Bank of Egypt alongside the Real Estate Financing Fund.
   2. Upon issuing its own mechanism.

4. Banks may use the amounts allocated to them through the initiative by redirecting them to real estate financing companies according to the following determinations:

   a. The maximum financing limit for companies shall be 20% of the value of the existing portfolio in the bank within the framework of the initiative.

   b. A binding contract (protocol of cooperation) shall be signed between the banks and real estate financing companies to apply all conditions and procedures of the initiative, particularly regarding lending rates and conditions for customers.

   Coordination shall be carried out with the General Authority for Financial Supervision to ensure that real estate financing companies comply with all conditions of the initiative with the banks.

5. Under no circumstances shall the portfolios of each of the banks or real estate financing companies arising under the umbrella of this initiative be sold.

6. Within the framework of the initiative, Paragraph (a) of Item Sixth of the creditworthiness assessment basis for customers and the formation of provisions, which relates to the rules governing the determination of the fair market value of real estate and commercial collateral, shall be amended. The fair value of pledged assets shall be determined at least every five years instead of three years.

7. The Banking Supervision and Inspection Sector at the Central Bank of Egypt is tasked with issuing a detailed circular containing the procedures and rules for implementing the provisions of this decision.

Please be so kind as to alert regarding taking the necessary action in this regard.

Accept our highest regards,
Hesham Rams Abdel Hafez