Economy, Business And Markets

Efforts to Legalize Real-Estate Leasing by Banks

Efforts to Legalize  Real-Estate Leasing by Banks
Efforts to Legalize  Real-Estate Leasing by Banks

Despite efforts by banking officials to help legalize leasing by banks in the housing market, no official permission has yet been issued, a top banking manager said.

"Negotiations with central bank authorities are in process but real-estate leasing activity is not officially recognized yet," Bank Maskan's CEO Mohammad Hashem Botshekan said on Tuesday.

Leasing firms are not authorized to get into the real-estate market but many experts believe leasing could partially help bring the housing industry out of recession.

A rental agreement is often called a lease. Real-estate rentals are initiated by a rental application which is used to build the terms of the lease. In addition to the basics of a rental (who, what, when, how much), a real-estate rental may go into much more detail on these and other issues. The real-estate may be rented for housing, parking a vehicle, storage, business, agricultural, institutional, or government use.

Botshekan expressed hope that central bank officials will be convinced soon to give the permission required to establish a leasing firm in the real-estate market.

The CEO, who was addressing a press conference in the central building of the Ministry of Economic Affairs and Finance in Tehran, also pointed to bad loans held by the bank which amount to 33 trillion rials ($1 billion at market exchange rate), saying, "the ratio of bad loans to total loans is 3% for Bank Maskan."

The bank, specialized in providing mortgage and other housing-related services, might be turned into a development bank. Officials have recently announced a plan to develop Bank Maskan into a development bank to maximize its efficiency in the struggling housing market.

Housing authorities hope the development bank—a finance institution—could provide financing for major construction projects, including the controversial Mehr project and the recently-initiated social housing scheme.

The Mehr project, a large-scale construction program initiated in 2007 by the previous administration to provide over two million low-income people with housing units through free land and cheap credits, slowed down due to lack of funding. It has also been blamed for contributing to inflation.

Iran needs to finance hundreds of construction projects to develop the housing sector in the next decade. Authorities believe a development bank is a right solution for lack of funding.

To that end, Botshekan said the government should first help state banks raise their capital.

"Over the last fiscal year, state banks failed to raise capital to effective levels," he said. "To make Bank Maskan a development bank it needs access to long-term resources, especially through participatory bonds."

On the other hand, Botshekan said supervision over a development bank needs a different procedure.