Salaf Contracts to Help Fund Housing Sector

EghtesadOnline: Plans are underway to launch standard salaf contracts for low-cost housing projects, head of the Ministry of Road's Housing Economy Department said.

News ID: ۷۵۱۷۰۷

14 December 2020

"Salaf contracts have been prepared by the Iran Mercantile Exchange and will be offered soon," Parvaneh Aslani told state TV on Saturday.

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 total value of a housing unit or a construction project will be securitized and converted into marketable salaf bonds.

The bonds are supposed to be issued by the builders and offered at the stock market. "This should reduce housing sector dependence on banks," IBENA quoted her as saying.

Each salaf contract will be backed by one square meter of a housing unit and each contract subject to the price of one square meter of a particular housing unit at the time of offer.

Investors who buy contracts will receive the housing unit on maturity date if they own enough contracts that cover the total carpet area.

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

On the merits of the preselling housing units through salaf contracts, Javad Fallah, the IME deputy for economic studies, said the “salaf contracts by nature can cover risks of rising real estate prices over time".

The plan has 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 special exchange for real estate trade.  The High Council of Securities and Exchange approved a decision to this effect in June.

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

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

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