Merrill Lynch says strong demographics and housing supply demand mortgage credit in Middle East and North Africa

This is according to the Merrill Lynch Guide to Emerging Mortgage and Consumer Credit Markets, Volume 2: CEEMEA.

In the first study of its kind, Alexander Batchvarov, head of international structured finance research at Merrill Lynch, and his team reviewed freshly gathered data on eight economies in the region: Bahrain, Egypt, Morocco, Qatar, Saudi Arabia, South Africa, Tunisia and the United Arab Emirates. The study also examines the equivalent data on 12 economies across Central and Eastern Europe.

The Research study underlines the large potential for development of the housing finance market across MENA and Central and Eastern Europe, especially among the growing low to middle income market.

"With increasing macro economic stability through lower interest rates and lower inflation, mortgages are more affordable to the wider population," said Batchvarov. "The challenge for banks will be to satisfy demand for financing while developing efficient market structures."

Developing new products crucial for MENA
The biggest challenge facing the eight MENA economies studied by Merrill Lynch is developing financial products to meet diverse housing needs. High birth rates and immigration to fill in low-skilled jobs are fuelling demand for housing.

Housing capacity exists, but affordability for the low-to middle income market is a challenge across MENA region with a few exceptions in the Gulf Co-operation Council (GCC) states. Creating sharia-compliant products should address specific borrower needs in some of the GCC countries, but to ensure their liquidity enforceability issues need to be overcome. Some MENA states must improve the legal frameworks for land ownership in rural areas and set up affordable administrative systems for title registration. If the bank lenders are to satisfy the housing finance needs fully, secondary mortgage market is yet to be developed.

Central and Eastern Europe faces different housing challenges
High ownership rates are a feature of Central and Eastern European markets, but mortgage penetration rates are often below 10%. Mortgage products have developed well since the early 1990s, including the popular but sometimes risky foreign-currency mortgages. The main challenge for many states among both EU-accession and non-EU accession economies is finding more cheap housing.

Merrill Lynch's Guide to Emerging Mortgage and Consumer Credit Markets is the second of a global, three-part work analysing markets in Latin America; Europe, Middle East and Africa (EMEA), and Asia. In each Research study, Merrill Lynch has applied the same unique metrics to assess the state and potential of the markets covered.