Banks Obliged to Increase Lending to Housing Sector

EghtesadOnline: Parliamentarians have obliged banks and credit institutions to allot a minimum 40% of their lending facilities to the housing sector in each fiscal year.

News ID: ۷۸۵۹۵۸

09 February 2021

The mandate applies to all commercial banks while specialized banks, except Bank Maskan — the main lender in charge of financing the housing sector, are exempted, IRNA reported.

As per the plan, the total sum allocated to the housing sector must not be less than 1,600 trillion rials ($6.6 billion) in the first year of implementation, which should increase in the succeeding years based on the annual inflation rate.

The home loans will be paid as per the annual housing needs announced by the Ministry of Roads and Urban Development.

The new decision is in line with efforts to boost the ailing housing sector, as home prices, real-estate and construction costs have jumped up exponentially in the past three decades making it difficult for the working class, especially the youth, to buy a decent apartment on their own.

To help lenders extend home loans as provided by the law, they are allowed to issue mortgage-backed securities (MBS), in compliance with regulations announced by the Central Bank of Iran.

An MBS is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. A mortgage bond is backed by a pool of mortgages on a real-estate asset such as a house.

Investors in MBS receive periodic payments similar to bond coupon payments. The investor, who buys a mortgage-backed security, is essentially lending money to home buyers.

The Roads Ministry is also tasked with setting up investment funds designed to finance the housing sector in cooperation with the Economy Ministry.

Details about the features of investment funds have not been revealed, but it could be similar to Real-Estate Investment Trusts announced by Mohammad Ali Dehqan, a deputy economy minister.

Designed to pool capital investments, REITs make it possible for individual investors to make a profit from real-estate investment, without having to buy, manage, or finance the properties themselves.

Many REITs are publicly traded on major securities exchanges and investors can buy and sell them like stocks.

National Housing Fund

The lawmakers had recently approved the establishment of a specialized fund in the housing sector dubbed "National Housing Fund".

“The fund will be set up within three months of this law coming into force, with the aim of synergizing, supporting and optimally allocating resources to the housing sector," an excerpt of the law reads.

As for its financial resources, the MPs said NHF will be funded through various sources, including interest on home loans, reimbursed home loans, construction fees, etc.

The government plans to establish a specialized exchange for real-estate trade. The High Council of Securities and Exchange had approved a decision to this effect in July 2020.

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 Iran Mercantile Exchange.

The real-estate bourse will focus on tackling the mounting challenges facing the housing market by making it competitive and improving transparency. The initiative would be timely and crucial for regulating and financing the huge domestic real-estate market.