Economy, Business And Markets

Buzz to Create Real-Estate Bourse

Buzz to Create  Real-Estate BourseBuzz to Create  Real-Estate Bourse

Policymakers and economic architects have lately expressed increasing interest in establishing a real-estate bourse. In their design, such a bourse would be mediated by the stock market, according to comments by economic experts and officials at the Ministry of Roads and Urban Development.

Several officials have stated their frustration with Iran’s real-estate market, the vast bulk of which is coordinated by dealers and brokers largely shielded from free market forces.

The real-estate market has suffered from one of its longest streaks of depression in recent Iranian history, with stalling price growth and lukewarm investor interest.

In a sign that this plan has up to now remained at the level of unofficial buzz, several officials said they have not been informed about the details of the plan and indicated that no time schedule for the draft has been approved.  

The president of the Securities and Exchange Organization, the government body in charge of Iran’s stock exchanges, has nevertheless expressed his organization’s willingness to cooperate with the Roads Ministry on any real-estate exchange market.

Advocates of the plan believe that an organized real-estate exchange market could lower prices in a largely unofficial market plagued by preferential trading and substantial broker commission fees.

However, it is still unclear whether this market should operate directly through the stock exchange or not.

With the tap of investment funding closed by western sanctions (imposed against Iran over its nuclear energy program) and lower oil revenues, the real-estate market has faced a severe credit crunch, causing new construction projects to be postponed.

Some officials believe an efficient real-estate market could provide a boost to investment financing, as construction companies could more easily sell their projects to investors and buyers.    

A member of the Economics Commission in Parliament argues that a real-estate exchange market could create transparency and price balance.

“Currently the price of real estate is determined through dealers. Therefore, if supply and demand are regulated [by an efficient market], real-estate prices will settle on a much lower level, which is a bonus to the buyer,” Mehr News Agency quoted Mohammad Rezapour Ebrahimi as saying.

A regulated exchange market could have large benefits to one of the key industries of the Iranian economy and financial sector. While the real exchange market already experiences a large amount of transactions and in the process has created one of the most viable motors of capital accumulation, investors believe organizing trading could pull the transaction volume up substantially.

However, some economists have expressed criticism at the idea of organizing real estate trading through the stock market.

Saeed Eslami Bidgoli, a senior official at the Iranian Urban Development and Revitalization Corporation, which is a branch of the Ministry of Roads and Urban Development, explains that real-estate trading normally does not happen in the stock market as the assets traded in the real-estate market, namely houses, are not homogenous in value.

“One of the main problems of our housing market is that information is not shared well. Even in the last few years trading information was not transferred in the right way,” Bidgoli added.

In response, Farshid Pourhojjat, vice president of the Association of Mass Housing and Building Construction stated: “In the beginning, a real-estate stock market would probably consist of large projects only, but it could also be designed for smaller projects.”

Pourhojjat noted that so far the plan has not been discussed with large companies.

Currently, the real-estate market is dependent on Land and Building Fund, which is the only existing credit support tool. The fund aims to financially support construction companies and forge links between them and investors.

Experts are skeptical whether a real-estate stock market can attain the transparency and efficiency the plan’s advocates profess. They point to the failures of the fund. The fund has set itself the aim of supplying between 5 and 6 trillion rials, but this has so far not been achieved due to lack of interest on the part of investors and construction companies.  

Policymakers have been extremely active over the past Iranian year (ended March 20) in reinvigorating long shelved plans of expanding the stock market. Over the past month, the idea of launching a stock market for Iran’s large cooperative sector has gained currency. These efforts have occurred in tandem with a stalling privatization process, forcing the government to come up with new proposals to reboot economic activity and investment.

Another way of organizing the real-estate market, which has been successful in other parts of the world, is through online marketplaces. Although in Iran initiatives to launch such web-based exchange have not been lacking, the vast majority of market participants still prefer to buy or sell their home with the intermediation of a local broker.