IME to Offer Salaf Contracts To Help Lift Housing Sector

EghtesadOnline: The plan to presale housing units through standard salaf contract will be implemented next month at the Iran Mercantile Exchange, the IME deputy for economic studies said.

News ID: ۷۵۰۷۶۲

22 August 2020

“IME plans to offer standard salaf contracts to secure funds through the capital market for the key housing sector,” Javad Fallah was quoted as saying by IRIB News Agency.

Fallah said the prospectus has been prepared by the investment company that will underwrite the offer.  The underwriter is the Housing Investment Group Company affiliated to Bank Maskan, the main housing lender.

Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the contract’s total price is paid in advance.

Outlining the procedure, the official said each salaf contract would be backed by one square meter of a housing unit. Each contract would be subject to the price of one square meter of a particular housing unit at the time of offer.

Contracts will be issued by construction companies. Investors who buy contracts will receive the housing unit on maturity date if they own enough contracts that cover the total carpet area (aka built-in area).

If the salaf contracts are not enough to buy the house, prospective owners can sell it at the market rate before or on maturity date.

“A portfolio manager has been appointed for salaf contract and investors can sell their contracts when they want,” Fallah said.

Salaf contracts by nature can cover the risk of rising real estate prices over time. “By buying salaf contracts investors can benefit from the added value of real estate,” Fallah said.

The plan needs to be vetted by the Jurisprudential Committee of the Securities and Exchange Organization to conform with Islamic law.

Real Estate Bourse

There are plans to set up a specialized exchange for real estate trade.  The High Council of Securities and Exchange approved a decision to this effect last month.

It will be the fifth bourse operating in the country after Tehran Stock Exchange, the junior equity market Iran Fara Bourse, Iran Energy Exchange and the IME.

The real estate bourse will focus on tackling the mounting challenges of the low-cost housing industry by making the market competitive and improving transparency.  It also is seen as timely and crucial for regulating and financing the huge real estate market.

According to Hosseini Moqadam, a member of High Council Securities and Exchange, the main stakeholders of real estate bourse would be the government, builders, contractors, banks and other state bodies with excess property.

The government, people and builders will be the min pillars of the real estate bourse.