Economy Minister Ehsan Khandouzi says the government will make use of real estate investment trusts (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 homebuyer over rising property prices," Khandouzi was quoted as saying by SENA.
Khandouzi was speaking at a ceremony marking the beginning of secondary trade of REITs at the Securities and Exchange Organization (SEO) in Tehran on Saturday.
He called on the state-owned banks to make use of REITs for selling their extra assets.
Iran Fara Bourse (IFB) in October launched the first real estate investment trust to help the key housing industry that has seen high and 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.
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 state and government.
Investors can gain in two ways: income generated from renting property and the annual dividend paid to owners of the investment units as per regulations.
Real estate prices increase over time, which in and of itself means good returns for investors.
Due to the failure of successive governments to boost low-cost home construction to meet ever increasing demand , the housing market is facing a huge supply deficit accompanied with chronic inflation, recession and rapidly declining purchasing power of fixed-wage earners.
The pattern over decades has made it increasingly difficult (some experts say impossible) for the low-income strata to afford a decent home. The same is true about the leasing sector.
Call on Banks
Speaking at the meeting, Majid Eshqi, the SEO chief, elaborated on advantages of setting up REITs by banks. "Establishment of REITs has indeed created a new opportunity for the government, banks and private companies to put to effective use their idle 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 often complain that they have trouble finding customers for their property, especially in expensive upmarket areas in big cities.
