Iran Fara Bourse (IFB) on Tuesday officially introduced the first real estate investment trust (REIT) to help the struggling housing sector.
According to Aref Aligholipour, the head of IFB financial institutions, the underwriting process of some units of the fund started on Tuesday and will run for ten days.
“The Civil Pension Fund Capital Value Management Group Company will offer 30 million investment units each worth 10,000 rials…the fund has a five-year operational license which can be extended by the Securities and Exchange Organization,” Aligholipour was quoted as saying by the IFB website.
Investors can gain in two ways: income generated from renting property and the annual dividend paid to owners of the investment units as per regulations.
“Real estate prices would also increase over time, which in and of itself means good returns for investors.”
The secondary trade of investment units will begin at the IFB Market for Innovative Financial Instruments, after the underwriting process is complete.
REITs own, operate or finance income-generating real estate. Modeled after mutual funds, REITs pool capital from assorted sources. This makes it possible for individual investors to profit from real estate investment -- without having to buy, manage, or finance the properties themselves.
It is publicly traded on securities exchanges and investors can buy and sell them like stocks. REITs typically trade under substantial volume and are considered highly liquid instruments.
Those in charge of the housing sector have focused on the stock market to secure much-needed funding. Experts underscore the role of REITs in helping low-cost housing projects, particularly those backed by the government.
New Scheme via IME
Earlier this week, the Renovation Organization of Tehran (ROT) said it is planning to launch a new housing scheme via the Iran Mercantile Exchange (IME) using salaf contracts.
Mehdi Hedayat, the ROT head, said the aim is to attract small investments and help the people to gradually own their homes, newswires said.
Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the contract’s total price is paid in advance.
As per the scheme, the total value of a housing unit or a construction project is to be securitized and converted into marketable salaf bonds. The bonds will be issued by builders and offered in the stock market.
Each salaf contract will be backed by one square meter of a housing unit and each contract subject to the price of one square meter of a defined housing unit at the time of offer.
Investors who buy the contracts will receive the housing unit on maturity date if they own enough contracts that cover the total carpet area.
If the salaf contracts are not enough to buy a home, the prospective owners can sell it at the market rate before or on maturity date.
Due to the failure of successive governments to boost low-cost home construction as expected, the housing market is facing a huge supply deficit accompanied with chronic inflation, recession and rapidly declining 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 is true about the leasing sector.
To improve funding, decision-makers are trying to create a specialized exchange for real estate trade. The High Council of Securities and Exchange approved a plan to this effect in July 2020. But it has been in limbo.
If it becomes operational it would be the fifth bourse in the country after Tehran Stock Exchange, the junior equity market Iran Fara Bourse, Iran Energy Exchange and the Iran Mercantile Exchange.
