The Securities and Exchange Organization (SEO) says it will facilitate funding for the housing sector by launching new instruments.
Speaking at a ceremony at the Iran Mercantile Exchange on Monday, the SEO chief, Majid Eshqi, said launching standard salaf contracts for housing projects is under close consideration, the SEO News Agency reported.
Standard salaf is an Islamic contract similar to futures, with the difference being that the contract’s total price is paid in advance.
“The plan, atop the IME agenda, is getting the finishing touches by the Jurisprudential Committee of the SEO,” he said, referring to the vetting body that ensures trade in the capital market conform to sharia law.
The SEO earlier announced procedures for prospective trade in housing salaf. Accordingly, the value of a housing unit or a construction project will be securitized and converted into marketable salaf bonds.
The bonds are supposed to be issued by the builders and offered in the stock market. This should reduce housing sector dependence on banks, market observers say.
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 the housing unit at the time of offer.
Investors who buy 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, owners can sell it in the bourse before or on maturity date.
Market experts say preselling housing units through salaf contracts can and should hedge risks of rising real estate prices over time.
Eshqi said that the IME is geared toward launching a market exclusively dealing in real estate. “In this market, we will see transparent real estate deals without the cumbersome bureaucracy and formalities.”
In recent months housing sector authorities have been looking closely at the stock market to secure much-needed funds for the home construction sector.
Last June, the High Council of Securities and Exchange, the top capital market policymaking body, approved a decision to set up a special exchange for real estate trade within the IME.
The real estate bourse is expected to address the mounting challenges of the low-cost housing industry by making the market competitive and improving transparency. It also is seen as crucial for regulating the key sector plagued for years with chronic funding deficits, mismanagement and exorbitant land prices, not to mention the insatiable greed of brokers and real estate agents.
In line with plans to support the housing sector, the SEO issued an agreement in principle to launch the first Real Estate Investment Trust (REIT) in February.
REITs own, operate or finance 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.
