Multilateral Push to Revive Housing Leasing

“The Housing Department of the Ministry of Roads and Urban Development, the ministry’s Planning and Economy Office, the National Leasing Association and the Research and Regulations Department of the Central Bank of Iran have formed this task group to devise a directive for the Money and Credit Council to fill the gaps in housing leasing,” Mohammad Hadi Moqei also told Fars News website.

According to the official, the aforementioned directive will be finalized and sent to CBI within two to three weeks and is expected to be approved by MCC, CBI’s top financial decision-making body, in one month.

In early February, the central bank issued a directive giving non-bank leasing companies the go-ahead to enter the housing market with the aim of improving people’s purchasing power and encouraging demand in a stagnant market, according to Financial Tribune.

However, as the directive was not comprehensive enough and did not meet the expectations of leasing companies that deemed its interest rate cap of 21% unacceptable and faced constraints in terms of capital, resources and taxation, these firms largely chose not to enter the embattled housing sector.

If the numerous official parties involved in reviving the operations of leasing companies in the housing sector succeed, it would be good news for a majority of Iranians who are overwhelmingly unable to afford even half the price of a home by themselves.

It would also mean that the Roads Ministry has made a significant headway in employing housing leasing as one of the most important tools of financing the beleaguered housing sector, especially since Bank Maskan, the agent bank of the housing sector and the only bank to finance the sector, is facing its own problems related to capital crunch.

As the official with the National Leasing Association outlines, the first and foremost gap in CBI’s current directive for leasing companies is that it only contains one article, stating that the firms are allowed to finance up to 70% of the value of a home through the lease option.

“But the directive that is being devised is much more inclusive, based on which leasing companies will be able to employ financial instruments in the capital market and come to an agreement with housing constructors,” Moqei added.

The official noted that a series of meetings have been held with the Securities and Exchange Organization to facilitate the leasing companies’ use of financial instruments, namely Islamic bonds such as sukuk.

He also said the central bank will consider further mechanisms to assist the leasing firms with profits, potentially allowing them to receive a portion of their interests from home sellers as 21% interest rates are too high for people looking to buy homes.

Asked about which part of the about 80-million-strong Iranian population has been considered as the target for leasing companies, Moqei pointed to income deciles of seven and higher.

That is because the services offered by leasing companies would end up more expensive than the cost of finance provided by banks, so “those services would not be suitable for lower deciles”, he added.

The official explained that someone with an average monthly income of 30 million rials ($750) would in most cases not be able to enjoy the forthcoming services of leasing companies in the housing sector, unless they turn to cheaper districts.

According to Moqei, considering the current level of resources held by the leasing companies, the repayment periods of their contracts with people have been set at a maximum of 60 months.