Economy, Business And Markets

Construction Projects Get Second Wind

Finance Desk
Construction Projects Get Second Wind
Construction Projects Get Second Wind

A  memorandum of understanding was signed between Bank Maskan and New Town Development Company—a subsidiary firm of the Ministry of Roads and Urban Development-- as the first “Property Management” agreement to mark a new era of funding for the cash-strapped construction sector.

Bank Maskan has agreed to invest 10 trillion rials ($344 million at the official exchange rate) to fund the construction of the New Pardis Town in Bumehen District, Tehran Province.  

The MoU opens the door for Bank Maskan to transform itself from a commercial bank into a development bank, Minister of Roads and Urban Development Abbas Akoundi indicated.

“We have obtained the initial approval of the Central Bank of Iran and the Ministry of Economy,” he said.  

The newly-launched Property Management Services Plan provides conditions for individuals or state-affiliated companies who possess substantial assets but are lacking in liquidity to receive funding through a mediator, such as development bank. The initiative is hoped to revive funding for unfinished construction projects that are in dire need of liquidity.

The plan also excludes banks as the main lenders --a rarity given the fact that 70% of projects normally rely on commercial lenders for financing.

Akhoundi said at the ceremony that neither banks nor state coffers could any longer inject cash into projects.

Banks’ escalating financial woes triggered by bad loans and mammoth government borrowing have weakened their lending ability to households and companies, prompting calls for sweeping banking reforms.

“We are determined at the ministry to cooperate with Bank Maskan and the equity market to finance all sorts of development projects,” Akhoundi said in comments posted on the ministry’s website.

Those projects, he added, would include building new towns, expressways and airports and expand railroads.

A shift from bank lending to other sources such as the equity market is a breath of fresh air for unfinished projects and small businesses whose requests for bank loans are often rebuffed. At present, the equity market only accounts for 10% of financing for projects and businesses.

  Alternative Financing

Mohammad Hashem Botshekan, Bank Maskan’s chief executive, said his bank’s investment division now plays an effective part in the equity and money markets. The services include financing, leasing, brokerage, insurance and market monitoring.

Bank Maskan has been the main force behind housing projects during its 76- year history. According to CBI’s latest rating, the bank ranks third in importance among commercial lenders.

The bank has expressed its readiness to take on the Ministry of Roads and Urban Development’s construction projects by providing the cash needed for those projects.  

Construction activity has been stagnant for more than two years. The government is looking for solutions to help stimulate both supply and demand in the real-estate market and its subsectors.

Pundits argue that the housing recession is linked to macroeconomic factors and emphasize addressing it should top the government’s worry list .The housing sector fuels 300 industries, affecting approximately 1,200 professions, according to Hesam Oqbaei, head of Tehran Association of Realtors.

Mohammad Fetanat, head of the Exchange and Securities Organization who also attended the signing ceremony said the housing sector would be the “precursor” to economic recovery.

“Cement and steel sectors are facing sluggish demand because of the recession in the real-estate sector,” he said. “On the other hand, the five top recipients of bank loans in the industrial sector that snap up 80% of loans are now facing a liquidity crisis.”

Fetanat recommended new methods of financing such as “Property Management” services to alleviate the problem.