New Financing Tools for Housing Sector

EghtesadOnline: The Ministry of Roads and Urban Development is coming up with innovative tools to finance the key housing sector in the coming years, its deputy for housing said.

News ID: ۷۷۹۱۵۷

16 September 2017

"Devising a new directive for real-estate funds along with a directive for regional financial and savings institutions is among our instruments [to finance the housing sector], which are being followed up and will yield results in the foreseeable future," Hamed Mazaherian was also quoted as saying by the official news website of the ministry.

The official elaborated on the workings of real-estate funds, saying they 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 make profit, according to Financial Tribune.

The dividends are then distributed between shareholders of the fund while "the goal of establishing them is to stimulate demand".

Employing the services of rent-to-own companies has been another instrument that has been put to use, he added.

After much discussion, the chairman of Iranian National Leasing Association, which had proposed the real-estate leasing scheme, announced early February that leasing companies have been allowed by the Central Bank of Iran to operate in the housing market.

"The leasing sector can finance up to 70% of the value of a home through a lease option," Hamid Ebdali had added.

However, leasing companies remain largely inactive and do not currently play a role in the housing sector.

According to Mazaherian, these firms will have a significant role in extending the much-needed finance to homebuyers.

The official pointed to the establishment of Land & Building Investment Fund as another instrument deployed in the housing industry that continues to grapple with the longest-running recession in recent memory.

As he noted, these funds aim to finance the housing sector through the exchange market, which was not previously possible.

Mazaherian said the regulations have been devised and such investment funds are currently active in Tehran, Arak and Tabriz.

Pre-Sale Regulations Tweaked

The deputy roads minister announced that regulations concerning pre-sales of apartments are to undergo reforms.

He noted that pre-sale of apartments has emerged as a success story in financing the housing sector and while the current regulations are creating hurdles, the concept is now "ingrained in our culture".

That is why the ministry has moved to make changes to the current faulty laws and an initial draft of the reform measures has been devised in the parliament.

"It seems likely that the new law would be implemented in the current fiscal year [ending March 20, 2018]," Mazaherian concluded.