Avishan, the second land and structure fund (LSF) founded in Iran, has gone through its Initial Public Offering and its investment units are now tradable in the secondary market.
The LSFs are a form of Unit Investment Trust—a type of mutual fund—and will be exchange tradable and regulated by the Securities and Exchange Organization (SEO).
Mohammad Pejman, deputy minister of roads, and urban development said on Saturday that his ministry supports the establishment of such funds, which he said, “would help increase the construction quality.”
The deputy minister, who is also the head of the National Land and Housing Organization, said the LSFs would help construction and housing projects finish in time.
Most construction projects in Iran suffer from a lack of funding, as project costs are miscalculated, and later the provided funds are mismanaged.
Housing projects across the country could now benefit from the stock exchange capacities which would lead people’s little savings towards giant projects and help fund government mismanagements in the form of capital.
“Investors and buyers will also benefit from the security, discipline, and financial and technical support such funds will provide,” noted Pejman. “The funds will bring an unprecedented transparency to the market.”
However, the lax financial reporting standards in the country are distressing, and each LSF fund can finance a single construction project, greatly increasing its non-systematic risk—risk pertaining to each project--, as opposed to pooling many construction projects together in one fund.
“All the costs for construction and implementation of the housing projects are clearly estimated and offered to be seen by the public, which makes it possible to regularly and comprehensively monitor the activities the funds engage in,” the deputy minister claimed.
Pointing to the current housing regulations, he said the government is planning to further promote modern methods to finance construction projects.
Earlier on Thursday, Abbas Akhoundi, minister of roads and urban development, praised the LSFs saying they would increase people’s power to purchase apartments, though he did not elaborate as to how.
Akhoundi said the LSFs will be much more successful than the controversial programs of Maskan-e Mehr, initiated by former president Mahmoud Ahmadinejad to build hundreds of thousands of cheap dwellings for low-income citizens.
Maskan-e Mehr is seen as one of the major factors behind the sudden surge in liquidity during the previous administrations reign, which led to hyperinflation and recession in the housing market.
Contractors can get a license to create a land and structure fund for each of their construction projects from the SEO, and issue shares afterwards. To get an issuance license, the construction project must have a construction permit, a feasibility plan and agreement of civil authorities. In other words, it must be a legal construction project.
After the license is issued, shares for the fund are sold via an Initial Public Offering and the money raised will be used to finance the project by the underwriter. Shares of the fund will be tradable on an exchange with the underwriter and market makers, tasked to assure liquidity and investor confidence in the project.
The funds raised from the IPO are under the underwriters control and will finance the project at its discretion. Thus the only guarantee of the liquidity of the fund and proper handling of the project will be the credibility of the underwriting company.
At the preset date for the end of the projects the fund’s shares will be redeemed by the issuer, and the fund terminated.
According to the SEO executive some of these land and structure funds can give precedence to their share holders when selling their finished residential or commercial units, at the end of the construction projects.
