IRAN: The Iranian financial regulator is seeking market feedback on new rules to introduce real estate investment funds as a new asset class to join its Islamic capital market as the Republic aims to attract more investments into the property sector amid a deteriorating economy.
The Securities and Exchange Organization (SEO) confirmed through its official mouthpiece Securities and Exchange News Agency that it has released draft regulations authorizing these new funds, which require a minimum 90% of the funds’ income to be generated from real estate rental and/or related securities. These funds can be underpinned by residential, commercial, industrial and sports real estate.
According to the new rules, at least three persons need to be named as founders of any real estate investment fund, and at least one of them will need to be invested into the fund by way of preference shares, providing the minimum capital requirement of IRR1 trillion (US$23.69 million). At least IRR100 billion (US$2.37 million) of the capital will need to be in the form of preference units while the rest can be ordinary units.
To ensure governance, each fund will need to appoint a fund manager, trustee and auditor. The draft rules also outline the role of fund managers, requirements for contractors and payment mechanisms.
In terms of investment activities, the funds’ may invest a maximum of 35% in securities such as participation bonds, Istisnah, mortgage and leasing of units, and construction projects, while a maximum of 5% of the funds’ total assets may be invested in shares of construction companies. Outside of these, the fund managers may invest in bank deposit certificates or fixed-income securities, but not in undeveloped land.
The SEO reportedly expects this new asset class to attract new investors into the capital market, build on real estate demand and encourage supply to ensure the continuous development of new real estate, which is seen as a safe investment haven during economic turbulence. Iran’s economy has been beleaguered with compounding challenges: ballooning inflation, contracting GDP growth and weakening currency especially after its recent presidential election which saw a new leader installed amid possible new sanctions.
The regulator is expected to finalize the regulations upon receiving public input.