Real Estate Investment Trusts (REITs) are a great help to banks as they can diversify their portfolio and sell real estate holdings in the stock market, a capital market expert said.
“The real estate investment trust is indeed an effective instrument connecting the stock market to the housing industry,” Hossein Doroudian told news outlets.
The trusts do a great service to the housing market in particular and urban projects in particular, Doroudian said.
“One way it helps is that it provides added diversification to financial instruments, potentially higher total returns, and/or lower overall risk… more so when the commodity market is on the downside.”
Some banks, he added, may not be willing to sell their real estate using the REITs simply because over the years it is largely the high and rising prices of their real estate that has sustained their relevance.
“Moreover, many banks might ponder that if they sell their real estate what can they replace it with? This is an impairment that needs to be addressed...”
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.
Iran Fara Bourse (IFB) in October launched the first real estate investment trust to help the key housing industry that is saddled with rising prices as never before.
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 SEO.
The IFB Market for Innovative Financial Instruments hosts secondary trade of investment units.
Economy Minister Ehsan Khandouzi announced earlier that the government will make use of REITs to reactivate its unproductive assets.
"REITs can help make best use of government assets in creating resources for funding economic sectors and address the anxiety of homebuyers over rising property prices," he said.
He called on the state-owned banks to make use of REITs for selling their extra assets.
Bank assets have piled up over the years mainly due to impaired loans, bad debts, settlement of unpaid government debt to banks, closure of branches and failed investments. They are under mounting government pressure to end their controversial non-banking activities by getting rid of expensive real estate and surplus holdings.
Selling nonfinancial assets are in line with notice given by the government ordering state-owned lenders to give up non-bank operations and focus on their real mandate, namely providing loans/credit to manufactures and businesses.
Authorities estimate that non-financial assets of lenders are worth 1,000 trillion rials ($6.3 billion). However, many lenders complain that they have trouble finding buyers for their real estate, especially in upmarket areas in big cities.
