real_estate_finance – Syria Report

In March 2024, the Real Estate Finance Oversight Commission (REFOC) announced that it had adjusted property appraisal fees to align with what it described as current “economic conditions,” and to take into account small- and medium-sized loans. The REFOC also indicated that it is working on revising its property appraisal guidance manual and finalising a memorandum of understanding with the Central Bank of Syria.

Real estate finance refers to the financing of the purchase, construction, renovation, or improvement of residential and service facilities, secured by a lien on the property, a mortgage, or any other security acceptable to the financier. Under the provisions of Law No. 39 of 2009, the REFOC was established to regulate and oversee the financing of the real estate sector, protect the rights of the various parties involved in the financing process, and improve the performance and efficiency of those working in this sector. The commission has a legal personality and financial and administrative independence and is chaired by the Minister of Finance. In March 2021, the Prime Minister restructured the authority’s board of directors to enhance its role.

REFOC is responsible for supervising and regulating the work of property appraisal experts, and issuing annual lists of licensed experts practising the profession. According to the commission’s data for 2024, there are 501 licensed property appraisal experts. Law No. 8 of 2012, which governs the property appraisal profession and its practice requirements, defines a property appraisal expert as a person certified in property valuation by the authority. To practise as a property appraisal expert, one must hold a university degree in economics, law, civil engineering, or architecture, and pass a central examination conducted by the authority. The property appraisal expert’s licence is granted for one year and is renewable, provided that the expert continues training and pays the necessary fees.

Law No. 8 of 2012 mandates the use of property appraisal experts in all financing transactions secured by real estate, in accordance with prevailing laws, notably Law No. 15 of 2012, which pertains to the establishment of real estate finance companies and real estate refinancing companies. Consequently, the scope of work for property appraisal experts remains limited, primarily linked to loan transactions through banks with real estate collateral, or real estate loans for purchasing, finishing, or renovating properties.

A property appraisal expert assesses whether the real estate collateral is suitable for loan repayment and determines the method of loan disbursement in instalments, based on construction progress. Typically, three property appraisal experts collaborate on a single appraisal report for borrowing purposes, inspecting the property and submitting their report to the bank.

Law No. 8 of 2012 specifies the role of property appraisal experts in estimating the value of real estate for purposes defined by regulatory decisions, though it does not specify the issuing authority of those regulatory decisions. However, the law implies these regulatory decisions come from official bodies relevant to the expert’s work, including public, joint, and cooperative sectors, as well as banks. The expert performs their duties exclusively upon written assignment from the relevant entity, and their report can only be used for the specified purpose. The expert preparing the report must not be affiliated with the financing institution.

Property appraisals can also be used for purposes such as insuring residential, commercial, and tourist properties, insuring against earthquakes and disasters, and other situations like inheritance settlements, partnership dissolutions, and real estate transactions including buying, selling, investing, and renting. In these cases, entities such as insurance and reinsurance companies, savings institutions, foreign companies, and joint ventures can engage a property appraisal expert. The expert prepares their report exclusively based on a written request from the interested party, using a specific, printed official form.

Amendment of Property Appraisal Fees

In March, Intisar Yassine, the Director General of REFOC, told the semi-official newspaper Al-Watan that the commission had reduced property valuation fees by half for loans secured by real estate collateral worth up to SYP 100 million. This measure aims to ease the burden on small real estate borrowers.

For larger loans, the fees for property appraisal experts can reach up to SYP 500,000 for industrial or tourism facilities, SYP 250,000 for commercial, residential, or artisanal properties within cities, and SYP 300,000 for such properties outside cities. However, experts often charge more, especially if the request comes from the private sector or individuals.

In all cases, 10 percent of the fees earned by experts are deducted as income tax for assessments and valuations conducted with the public sector, joint ventures, and cooperatives, as stipulated by Law No. 8 of 2012. Property appraisal experts and companies are subject to income tax for appraisals and valuations conducted with other entities under the provisions of Income Tax Law No. 34 of 2003 and its amendments.

Amendment of the Guidance Manual

Ms Yassin mentioned that REFOC is currently considering amendments to “the Property Appraisal Guidance Manual and the National Property Appraisal Standards and the Property Appraisal for Insurance Purposes.” This is the primary manual adopted by the authority to define the concept, principles, standards, and methods of property appraisal, as well as the procedures and mechanisms for the work of property appraisal experts. The manual includes property appraisal standards, insurance appraisal standards, and sample appraisal reports, based on the provisions of Law 8 of 2012.

No information is available regarding the memorandum of understanding between the Real Estate Finance Authority and the Central Bank of Syria.

The residential real estate sector in Syria is grappling with a funding crisis, evident by the lack of financing companies capable of implementing housing projects and selling them to investors or potential homeowners. The complex terms imposed on state-owned banks also hinder their ability to grant real estate loans for individuals to finance home purchases.

This is despite the existence of Law No. 15 of 2012, which allowed both the public and private sectors to establish real estate finance and refinancing companies. According to the law, real estate financing refers to investment financing, whether for purchasing, building, renovating or improving housing and properties for various activities.

Financing is carried out with the property as collateral, either through a mortgage or other securities accepted by the financier – that is, the company licensed to undertake real estate financing activity. Meanwhile, the investor is any individual or legal entity wishing to obtain real estate financing. Finally, real estate refinancing involves transferring real estate debt from one financier to another, a method that has not yet been adopted in Syria.

Law No. 15 allowed for establishing three types of real estate financing companies: regular real estate financing companies, those operating according to Islamic law, and real estate refinancing companies. However, the previous Decree No. 88 of 2010, related to the lease financing of equipment and real estate, had allowed two types of real estate financing companies to own the properties they financed: regular lease financing companies and Islamic leasing companies.

Without any licence granted so far for real estate financing companies, state-owned banks have been expected to finance a portion of residential projects. Banks try to contribute to real estate financing by granting loans to social and cooperative housing projects implemented by the General Housing Establishment (GHE) or by cooperatives. Here, the financing by state-owned banks is limited to the GHE and the management of housing cooperatives, but there is little information on the scale of this financing.

However, given the scarcity of these types of projects, it appears that state-owned banks prefer to limit financing to individual real estate loans for home purchases, although here too they have been unable to play an effective role. This is due to challenges such as the substantial financial or real estate guarantees that banks demand, often constituting 200 percent of the loan value. The properties used as collateral for the loan must also meet the conditions of the land registry, meaning they must be licensed in zoned areas.

But for most properties in Syria, property documentation issues create many restrictions for real estate collateral when the property is not subdivided, is commonly owned, has mortgage marks or lacks official ownership documents. Another obstacle to financing is the inability of borrowers to pay their monthly loan instalments due to the significant gap between home prices and public sector employees’ and low-income workers’ wages; indeed, even in cases where the bank agrees to grant a loan, the borrower must buy the property first. That means the buyer must pay before he even gets the approval for the loan.

On the other hand, the cap imposed by monetary policy on real estate loans by public banks is significantly lower than the “current price,” or market selling price of properties. The ceiling of the granted loan often does not exceed a quarter of the current property price.

This issue highlights a multifaceted problem between banks and real estate financing. The Real Estate Finance Oversight Commission (REFOC) affiliated with the Ministry of Finance, required banks, before they finance any property purchase, to commission real estate experts to estimate the value of the property serving as loan collateral. Borrowers often describe the role of these experts as being inclined to underestimate the estimated value, which sometimes increases the required real estate collateral and stalls the financing process.

Under Law No. 15, a real estate expert is any individual licensed by the REFOC responsible for appraising properties and determining their values. The REFOC was established under Law No. 39 of 2009 to regulate the real estate financing sector. The commission, which is headquartered in damascus, enjoys an independent legal status, financial and administrative independence, and is affiliated with the Ministry of Finance.

The board of the Real Estate Financing Oversight Commission was reconstituted in 2021 via a Prime Minister decision, in an attempt to invigorate its role. However, this move failed to produce any real change. In 2022, the director of the REFOC stated that the current economic environment was not conducive to real estate financing companies due to a lack of flexibility in inflow and outflow of funds from foreign investors and the instability of the exchange rate of the Syrian pound.

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