The Securities and Exchange Organization (SEO) is diversifying methods of fund municipalities, the SEO chief said.
“Up until now, municipalities were funded largely by issuing participatory bonds, which was not enough to meet all their needs for development projects,” Majid Eshqi was quoted as saying by the Securities and Exchange News Agency.
Eshqi underlined the dire financial condition of municipalities and revealed that at times they were forced to “sell their valuable assets to secure funds.”
He pointed to a memorandum of understanding recently signed between the SEO and the Tehran Municipality (TM), saying it calls for developing new instruments to help pay for municipality projects.
Based on the MoU, municipalities can use assorted methods of funding, like issuing bonds and setting up Real Estate Investment Trust (REIT) funds.
“Each of these instruments can be used depending on the nature of the project.”
Eshqi added that launching REITs for municipalities is on the top of SEO’s agenda, describing it suitable for urban expansion projects.
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 buy and sell them like stocks throughout the trading session. REITs typically trade under substantial volume and are considered very liquid.
Properties in a REIT portfolio may include apartment complexes, healthcare facilities, hotels, infrastructures, office buildings, retail centers etc.
Giving an example, Eshqi said an owner of real estate doesn’t have to sell the whole property to secure funding but can securitize 20%-30% of the property and offer them in the form of REIT units to investors.
The capital market has recently attracted the attention of municipalities of big cities. In May, Abolfazl Fallah, the deputy for economic affairs at the TM said it plans to purchase raw material and equipment for urban development projects from the Iran Mercantile Exchange.
Fallah said the move would help improve financial transparency in the municipality, cut expenses and eliminate middlemen.
IME is a commodities exchange in Tehran founded in 2006 to handle deals in farm, industrial and petrochemical products in the spot and futures markets.
