Egyptian Consumers' Knowledge of Mortgage Finance and Property Registration

Housing Finance International, Dec 2007 by Struyk, Raymond J

Introduction

Both mortgage finance and mass title registration are novel in Egypt. In 2005 there was scarcely any home purchase mortgage loans issued and only 10 percent of urban residential property was formally registered.2 The two areas are closely related because difficulties in registering properties and mortgage liens raise the transactions cost of mortgage lending and increase risks to lenders of engaging in such lending that the pledged collateral may not in fact be available to it should the borrower default on his loan. The reformist Government under Prime Minister Ahmed Nazif that took office in 2004 has taken a series of actions to jump start mortgage lending and to improve the efficiency of the registration process and dramatically cut registration fees. These measures have been accompanied by various advertising campaigns by lenders and the government to expose would be borrowers and current home owners to the "new products" of home mortgages and comparatively cheap registration.

The question addressed in'this paper concerns consumer knowledge levels and attitudes about home purchase mortgages and title registration by February 2007 after these campaigns. Importantly, those interviewed were either recent home purchasers or those who expected to purchase a unit in the next three years, ie, those with greatest interest in following the development under examination here.

The analytical results are important from a policy perspective because they inform policymakers and lenders of the effectiveness of such broad educational campaigns.

As detailed below, there are modest differences among the sample population between their understanding of the basic idea of mortgage loans (modest) and of property registration (high); but specific knowledge was greater for mortgages than for registration, perhaps because mortgages are so new in Egypt and are receiving a good deal of attention. Half of the respondents who have purchased a property in the past five years say they have registered them, and a large majority of respondents report being motivated to register a property purchased in the future, despite misgivings about the registration process. The findings taken as a whole indicate that a substantial educational job remains to motivate consumers to use mortgage loans in home purchases, particularly given the present high interest rates. On the other hand, the task for registration is to improve the actual registration process and then to inform consumers about the improvements.

We were unable to identify a literature on knowledge and attitudes about mortgages and property registration for home purchasers in developing countries. There is a rich literature on the attitude of rural residents on registering their plots, in terms of the security gains achieved.3 Also, a solid literature exists on the effects of urban dwelling title registration on owners' decisions to invest in their properties ' and the effect of secure titles on housing values.5 For developed countries literatures are present for consumer knowledge of financial products (often from a consumer protection perspective) and attitudes (often from a marketing perspective),6 but not for registration presumably because it is essentially universal. Thus, it appears that this study offers initial findings for developing countries on knowledge and attitudes.

Because it is a single country study, financial depth and access to services are held constant in the analysis.7 As such it contributes to the first of the two tracks in the emerging literature on financial services in developing countries: single country studies of measuring and analyzing access to financial services at the household or firm level (eg, Claessens, 2006), rather than cross country studies analyzing barriers to access (eg, Beck et al., 2006).

The presentation is organized as follows. The first section provides information on the Egyptian context for the analysis, including recent developments in mortgage lending and property registration and related information campaigns. The second section discusses how the survey was conducted, sample sizes, types of questions asked and the sub-populations of interest. The third section briefly outlines the analysis done. The fourth presents the results of the descriptive analysis of changes over the period and the fifth summarizes the results of descriptive regression models employed to identify significant covariates of knowledge and attitudes. The final section concludes.

Context

This section provides background on three topics: the first two cover, respectively, the status of property registration and home purchase mortgage lending in 2005 and government initiatives since then in each area; and, the related marketing and education campaigns conducted, beginning in late 2005.

Property registration. Despite laws viewed as essentially sufficient to support a functional title registration system, in 2005 an expert analysis described the system as:

...Egypt's real property registration system can best be described as onerous and expensive for applicants, vastly underutilized, excessively bureaucratic and complex, misunderstood and unpopular with the public, and incapable in current for of promoting a real estate mortgage finance market. (Egypt Financial Services, p xi)