The Ministry of Economy has made a proposal to the Securities and Exchange Organization to create Real Estate Investment Trusts (REIT) to help fund the key housing sector, a deputy economy minister said.
Mohammad Ali Dehqan said the proposal was floated based on research by the ministry and in consideration of housing sector developments, adding that REITs can offer effective solutions to credit problems homebuyers have long been facing, Tasnim News Agency reported.
REITs own, operate or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to make a profit from real estate investment -- without having to buy, manage, or finance the properties themselves.
Many REITs are publicly traded on major securities exchanges and investors can buy and sell them like stocks throughout the trading session. REITs typically trade under substantial volume and are considered very liquid instruments.
Underscoring the role of REITs in funding housing projects, Dehqan referred to the government-backed National Housing Initiative and said such funds can help attract public savings into the credit-thirsty housing sector.
“We have to move toward using REITs under such conditions and turn micro credits into productive investments by directing them toward stock market,” he was quoted as saying.
NHI has said it intends to build 400,000 affordable homes to first-time homebuyers from the middleclass.
Due to the failure of successive governments to boost the low-cost home construction sector, Iran's housing market is facing a huge supply deficit accompanied with inflation, recession and crash in the purchasing power of fixed-wage earners.
The pattern over decades has made it increasingly difficult (some experts say impossible) for the low-income strata to afford decent housing. The same can be said about the leasing sector.
The government has recently moved its sights on the stock market to secure funding for the home construction sector.
Enter Salaf Contracts
In related news on Wednesday, the market development deputy of Iran Mercantile Exchange, Alireza Nasserpour, spoke about a plan to issue Standard Parallel Salaf Contracts for pre-sale of housing units.
Standard Parallel Salaf is an Islamic contract similar to futures. It refers to sales in which payment is made in advance by the buyer. Total payment sis made when the transaction is complete.
Within this framework, a constructing company can issue Salaf contracts to interested home buyers. The builder is committed to deliver the housing unit before the date of maturity of the contract, Nasserpour was quoted as saying by IRNA.
Outlining goals behind the scheme, Nasserpour said “the plan aims to enable homebuyers to buy homes under inflation condition while in the meantime it provides a suitable financing method for the constructors”.
Earlier in the month, Amir Mahmoud Ghaffari, a deputy minister of roads and development, said the ministry wants to tap into the IME capacity to fund housing and transportation projects.
Ghaffari pointed to collaboration with the SEO to set up a mechanism based on which the IME will help fund housing and transportation infrastructure.
For this purpose the IME is getting ready to launch a trading platform designed specifically for real state trade.
Additionally, the IME is setting up land and real estate funds to help meet the financial needs of construction companies. Construction companies will then be able to sell homes via the IME.
According to the official, the New Town Development Company and the National Land and Housing Organization are to prepare the groundwork to launch real estate funds and offer housing units at the IME.
The Road Ministry is also in the process of securing funds for the transportation sector by implementing 14 road and rail projects via the bourse.
