Home Purchase in Nascent Mortgage Markets: Determinants of Who Borrows and Who Pays Cash in Cairo

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Date Published 2008
Primary Author Raymond J.Struyk, Ireny Roman
Other Authors
Country Egypt, Arab Rep. of


This analysis examines the broad pattern of home purchase finance in the Greater Cairo area during the 2002–2006 period, with a specific focus on understanding the determinants of the choice between all-cash payment at the time of purchase versus alternative financing arrangements that involved borrowing (‘‘installments’’). The data employed are from the Greater Cairo Housing Survey fielded at the end of 2006. Several other factors also are associated with the choice of finance method, most importantly income with the likelihood of paying all-cash declining at a decreasing rate. Those purchasing a new unit are 26% more likely to pay in installments, presumably due to developers marketing this option. As important as these findings is the lack of statistical significance of a number of factors that should matter in doing responsible loan underwriting. These include whether the property is in an informal area or not, the composition of income, and the price of the unit. This pattern indicates that lenders were not rigorously scrutinizing income composition, the ability of the purchaser to continue make payments well into the future, or proper registration to secure the ownership claim. A principal policy conclusion is the necessity in circumstances like those in Egypt to strengthen the quality of loan underwriting by taking into account the kinds of factors just enumerated. The low incidence of installment finance, at only about 25%, also signals the need for abroad outreach program to alert potential home purchasers to the advantages of borrowing for home purchase.

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