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.