Capital Market Tools for Housing Recovery

EghtesadOnline: In trying to end the downturn in property market by employing innovative tools, the government is tapping the country's budding capital market to help finance the key industry and empower first-time homebuyers.

News ID: ۷۴۴۰۰۴

08 October 2017

The Ministry of Roads and Urban Development has, through the agent bank of the housing sector, Bank Maskan, has tapped bonds and real-estate funds in the past couple of years, a report on the ministry's website shows.

According to the report, the administration of President Hassan Rouhani sought to create significant changes both in the monetary and capital markets from the start of its tenure just over four years ago to orient them with housing recovery goals, Financial Tribune reported.

"Issuing mortgage-backed securities, setting up real-estate funds, establishing land and building investment funds [15 such funds] and issuing sukuk [Islamic bonds] are among solutions placed on the government agenda to finance the housing sector," the report said.

MBS

According to the MRUD report, mortgage-backed securities (MBS) have been employed as a new financing method with the aim of empowering and increasing the loan allocation capability of Bank Maskan, the agent bank of the housing sector, for the first time in the Iranian banking system.

The directive for MBS issuance was approved by the Securities and Exchange Organization two years ago and was subsequently notified to the bank.

"Marketability of securities, the necessity of attracting investors, covering costs emanating from their issuance and being economically viable" were reportedly the main criteria behind the releases.

All-in-all, the government aims to publish 100 trillion rials ($2.5 billion) worth of MBS, 3 trillion rials ($75.9 million) of which have so far been issued. If it gets the approval of the Central Bank of Iran, 10 trillion rials ($250 million) worth of MBS will be published before the current fiscal year is out in March 2018.

Real-Estate Funds

The government has undertaken the feasibility studies of establishing the first real-estate fund in Iran with the goal of attracting foreign finance.

According to the ministry, preliminary measures were taken for Bank Maskan-affiliate Housing Investment Company to launch its first fund that is going to enjoy tax exemption.

As previously outlined by Deputy Housing Minister Hamed Mazaherian, these funds are a form of investment funds that purchase a basket of assets in the real-estate market and manage them in the rental market to turn a profit.

Dividends are then distributed between shareholders of the fund.

"The goal of establishing them is to stimulate demand," Mazaherian had said.

Land & Building Investment Funds

As the ministry elaborates, 15 land and building investment funds are to be built as finance tools for the housing sector.

They will be listed respectively as non-commercial institutions and financial institutions with State Organization for Registration of Deeds and Properties and the SEO that, along with the ministry, will also supervise their operations and progress.

"The main goal of establishing these funds is to absorb public resources and direct idle liquidity toward the housing sector through the capital market," the ministry's report said.

The fund will attract capital from investors and after the residential units are sold, the revenues will be divided among investors.

Sukuk

The next instrument employed by the government is publishing sukuk, a form of Islamic bonds, through firms affiliated with Bank Maskan.

The ministry is reportedly engaged in negotiations with the central bank to issue Ijarah sukuk. While 5 trillion rials ($) worth of sukuk are to be issued for Iran Air, 3 trillion rials ($75.9 million) will be assigned to Port and Maritime Organization and if approved, 10 trillion rials ($250 million) will be the share of Mobarakeh Steel Company.