In the latest complication facing the much-hyped proposal to create a real-estate bourse, a senior government adviser argued that the heterogeneous nature of the housing market would restrict the initiative to the largest of building projects.
“Real-estate is not a homogeneous commodity. Only public and large buildings with values of between one and two trillion rials ($30-60 million) could be offered on the proposed bourse in a transparent way,” IRNA quoted Hossein Abdoh Tabrizi, adviser to the minister of roads and urban development, as saying.
Apart from variations in design, size and materials, the real-estate bourse would have to be able to figure in price differences based on location, which Abdoh Tabrizi believes will be particularly hard.
Plot prices are heavily differentiated across Iran and not least in Tehran, where a house in the affluent north sells for several times the equivalent in the south.
On the one hand, the initiative to allow trade in real estate on the stock market is a result of the dependency of the private sector on this immobile asset. Up to 64% of Iranians own a house, often constituting the majority of their wealth. The real-estate market has been a particularly effective source of profit-making in the capital Tehran, where this home ownership rate favorably combines with high population densities, a dynamic renting climate, extensive state ownership of buildings and a sizable middle and upper class.
On the other hand, the government is alarmed by sluggish growth in the housing sector, which has caused a sharp drop in new construction while unfinished projects have been postponed. Despite receiving additional government support, large-scale social housing project Mehr, which is largely led by private contractors subsidized by the state, has been but one victim in the nation-wide housing slump. The role of the private sector in Mehr has often been criticized for delays and corruption, exposing the limits of credible government supervision.
Officials believe that listing large-scale projects on the bourse could provide such supervision by proving much needed finance, increasing transparency and reducing speculation.
The Ministry of Roads and Urban Development originally proposed the idea of a real-estate bourse, and it is currently being negotiated in Majlis Economic Commission. One commission member, Ebrahim Nekou, is skeptical and told IRNA that a real-estate bourse would only encourage speculative activities by market activists and this would be detrimental to the market’s stability.
Another member, Mohammad Rezapour Ebrahimi, is more optimistic, saying: “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.”
Nevertheless, the framework of how stock market investment in real estate would take place has not yet been specified in any detail.
In other parts of the world, real estate figures prominently on stock exchanges through Real-Estate Investment Trusts. On the back of global urbanization and rising house values, REITs have often outperformed other asset classes, while not being as volatile. International cities like London and New York have been especially the target of REITs and other funds that chase comparably safe, profit-bearing assets. One advantage of REITs for investors is that they are often mandated to pay out up to 90% of taxable profits in dividends.
