Al-Tameer Mortgage Finance Company-Al Oula intends to freeze its 3 billion Egyptian pounds securitization bond program in light of recent increases in the Central Bank’s interest rates.
Sources close to the matter stated that “Al Oula” was highly interested last year in completing its securitization bond program to diversify its resources and benefit from the secondary market for financing instruments. However, the management has decided to freeze this step in recent weeks.
Pioneers Properties for Urban Development (PREDCO) Square The sources explained that the decision stems from several reasons, most notably the company’s expectations of a sharp decrease in portfolio targets for the current year, reducing its desire for new financing. In addition, the possibility of affecting the credit rating of the securitized portfolio in light of inflationary pressures and increasing customer delinquencies is also a factor.
The sources also mentioned that securitization bond issuance has become very expensive in the local market. For example, “Al Oula” intended to securitize a real estate portfolio worth 1.5 billion pounds to obtain liquidity of 1 billion pounds from it before the interest rate hike, which could lead to increased costs.
The sources further stated that all real estate financing companies are currently reviewing their clients’ situations amid expectations of increased delinquencies due to the rise in monthly installments following a six percentage point interest rate hike all at once.
Securitization bonds are financial instruments traded within the limits of the economic rights and future receivables they guarantee. They are issued by one of the securitization companies licensed by the Financial Regulatory Authority. The issuing company is entitled to receive its value immediately, enabling it to provide liquidity for further financing without waiting for installment repayment dates.
Ayman Abdelhamid, Vice Chairman of the Board and Managing Director of “Al Oula Mortgage finance company” stated that his company had aimed to provide financing of around 3 billion pounds during the current year but would reduce that amount to reach 1.5 billion pounds in light of the interest rate hike and difficulties in obtaining loans or facilities from banks due to increasing risks and returns.
He gave an example of a unit recently purchased for a client worth 1 million pounds under the real estate financing system for ten years, resulting in a total price of 2.7 million. However, with the recent increase in interest rates, it will reach 3 million, a value that may deter citizens from real estate financing.
It is worth mentioning that the Financial Regulatory Authority recently revealed a decrease in the number of real estate financing contracts during the first eight months of 2023 to 3,231 worth 5.4 billion pounds, compared to 6,801 worth 8.7 billion during the same period in 2022.
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