It sounds great when you learn the Central Bank of Egypt is aiming at empowering more and more people to own real estate. They do so by encouraging mortgage, which is an asset-based loan where you take a loaned amount from a bank, buy a house for example, pay installments + interest back and if, God forbid, you default, the house becomes the property of the bank.
Lately, not only did the bank encourage and campaign for mortgage, it has lowered the acceptance criteria for banks to offer people mortgage, meaning more and more people can do that in Egypt.

What could go wrong?

Yes it sounds great, but is it really that great?

Loads of Houses

While more people will be empowered to buy houses, developers will find incentive to build more, which will lower the price of houses as supply increases.

One Bet Fits All

It is very risky to bet on one main incident and build an entire system around it. The one and only bet is that price of real-estate will always increase at a rate higher than inflation, a statement has already proven to be wrong many times in the past couple of months. Read our take on this since 2015 already here. This is exactly what happened in 2008 when the entire system was betting that real-estate prices will always be in the surge and when this didn’t happen, it’s a huge domino falling apart.

o-mortgage-facebook
Photo courtesy of Huffington Post
It is worrying, but should we avoid taking mortgages?
Of course not, we just should avoid speculation. Just like we shouldn’t do with the dollar, if we buy real-estate using mortgage, it shouldn’t be an investment tool or a result of speculation. Instead, it is advisable to be driven by a need for real-estate.
IMG_4105
Advertisements

Written by The Wall Corp Journal

The WCJ team manages the firm's journal and serves as a main platform to broadcast our views, analyses, comments and advice on the economy, investment scene and business outlooks.