Hidden risks of “metric sales” – Tejaratnews
According to Tejarat News, the first bridge was created in the early 90s with the start of the land and building fund, but due to what the housing developers call bureaucracy, the activity of this route did not actually continue. “Buying a meter of housing” is possible from the first bridge. However, the second bridge also has uses.
According to the economic world, the distortion of the reality and the nature of the real estate fund to sell housing meters has created a kind of mental deviation for the applicants to invest in this fund in relation to its function. While the subscription of the first real estate fund as one of the stock market methods of real estate investment was done on October 26 of this year and the first real estate fund was formed on the basis of a non-residential building property by a government institution, now the nature and reality of this fund has been exposed to distortion. .
Since two days ago, the possibility of secondary transactions after the initial offering of real estate fund units has been provided in the capital market. The distortion made in the introduction of the nature and reality of real estate funds has led to the formation of a false impression in this field that in The format of these funds is to sell housing meters with the aim of housing applicants and investors during the investment period, if this perception is completely wrong. The first real estate fund has been created on the basis of non-residential building property and its units have been offered to investors.
Therefore, in the first place, the property offered in the capital market in the form of a real estate fund is basically not a residential property and has an administrative use, so investing in this fund does not mean buying a meter of housing from the investors. Basically, these funds will not have the nature of selling housing meters. Real estate funds are actually formed on the basis of a property with office, commercial or residential use, and the owner issues capital units or units on the basis of this property, and investors can buy these units and after a period of five years, which is the life of this Funds are considered, in addition to enjoying the income from renting the property during the life of the fund, they receive the principal and interest of their capital based on real estate inflation.
In fact, this fund is created with the support of a property with different uses, based on the value of the property, the capital units are released and offered in the capital market, the property is rented, and during the life of the fund, which is five years according to the statutes of the formation of these funds, the rental income is given to the investors. is awarded Finally, at the end of the investment period or the end of the fund’s life, the principal and profit from this investment will be paid to the unit buyers or investors based on the current value of the property. Therefore, in these funds, the ownership of the property is not transferred to the investors.
This is despite the fact that as a result of some misconceptions, in recent days, the wrong impression has been created that investing in real estate funds is synonymous with buying a square meter of housing, while basically the current fund, which is the first fund created in this format, is based on real estate. A residential property has not been created and even if this property was residential, investing in the real estate fund has nothing to do with the sale of housing units and households becoming homeowners using this investment fund. But these funds can be of interest as a housing inflation shield, because at the end of the investment period, the principal and the investment interest are paid to the unit buyers or investors in proportion to the inflation of the property based on which the fund was created.
In fact, investors’ profit is determined according to the current value of the property and its price increase. But these funds do not provide permanent ownership to unit buyers in the form of meter sales. This is despite the fact that in recent days it has been continuously announced that people who do not have the ability and budget to buy housing can get on the housing inflation train by buying a meter of land in the form of real estate funds and eventually become homeowners. While basically, the nature of buying a housing meter is different from this investment method.
Hidden risks
A mistake related to the distortion of the reality of these funds to the sale of the meter that was mentioned. But it should be said that the real estate fund does not mean selling housing meters. Of course, its earnings may be around housing inflation; But the permanent ownership is not transferred to the buyers and after the end of the life of the fund, the principal and interest of the investment and not the part or the whole of a residential unit are paid to them. In addition, the properties that support the formation of the fund are not necessarily residential properties. The property on which the first and only real estate fund has been formed so far is the administrative property of a government institution.
Any property with any user, provided that other conditions are met, can be the support of these funds. Studies show that in all past periods, housing inflation has been different from office and commercial real estate inflation. At some points in time, housing inflation has been higher than commercial and office inflation. In most cases, the inflation of commercial and in some cases the inflation of administrative has been higher. This fact can include a kind of hidden risk for investors of real estate funds, that the inflation of these properties and the profit from investing in this fund in cases where the property is not residential and is administrative or commercial, will not necessarily be as high as housing inflation. And it may be equal or more or less than it. The hidden risk can show more dimensions of investment in these funds according to the reality of the office and commercial real estate market in the corona and post-corona period (current period).
During the peak period of the spread of Corona virus and after that, the spread of remote work caused a deep recession in the office real estate market, and some innovative and innovative companies changed their presence in the business arena from the physical presence of employees to remote work. In this way, the demand for buying and renting office properties decreased a lot and these businesses did not need or less need to buy or rent these properties. But it should not be overlooked that, almost certainly, five-year investment in these funds will bring more profit than the interest rate of the money market (deposits in banks) for investors.
But that this type of investment directly leads to the ownership of a few meters or an entire residential unit, it is fundamentally wrong. On the other hand, in this fund, the income from investment is exactly equivalent to the rental income and the growth of the property price is proportional to its use. In addition to the hidden risk of this investment and the non-requirement of equality of profit due to investment in this fund that is proportional and equivalent to real estate inflation, the risk or other mental error is towards the housing supply side.
Controlling the inflation of residential apartments
In recent days, in some cases, it has been observed that the effect of launching land and building funds on increasing housing production, curbing real estate inflation and housing the homeless is being discussed. The second misconception of the nature of these funds is related to this issue. It should be said directly that these three positive events, i.e. increasing the supply and construction of housing, curbing the inflation of residential apartments and housing for first-time households and people without housing, will not come from real estate funds. These funds are created on the basis of a building property with different uses that is not necessarily residential and has already existed and has been around for a few years. Real estate funds and investment in this field will not create a new property, but the property that is the basis of this fund already exists and the fund is created based on it.
In fact, these funds are not a direct way to guarantee these three positive events in the housing market. The path that directly guarantees these three events is the land and building fund; A fund that starts a project from the beginning with the support of the attracted funds, with the aim of building residential units, and finally, the principal and profit of people’s capital in the form of a residential unit or cash income is handed over to them at the end of the construction period. It is in the form of land and building funds that, firstly, the new supply of housing increases and new residential units are built and put on the market, secondly, the appetite for real estate investment is directed in the right direction, which is the construction and production of new residential units, and it is effective in curbing real estate inflation. It happens and finally helps to house the first housewives and people without housing.
But these funds, which were launched at the beginning of the 90s, were limited to the implementation of a few projects by a government institution due to bureaucracy and unenforceable stock market conditions in construction projects and were not welcomed by the private sector. Of course, part of the real estate investment demand must have been removed from the housing market and non-productive real estate activities through these real estate funds, and in this way, it can have a positive effect on controlling the unrest in this market and helping to curb the inflammation in other quick liquid markets such as the dollar and coins. and have… Another mistake is related to distorting the main function of these funds.
The main function of real estate funds in the world, as a new way of investing in real estate, is to respond to the financing demand of people who want to rent on the one hand, and to have investors who tend to earn money from the income of the rental market on the other hand. In some countries, since The income of the rental market is high and is equal to the income of other markets, some people who are inclined to operate in this area, through the formation of real estate funds, provide the financial resources needed to enter the field of professional leasing, and on the other hand, some investors also By buying the investment units of these funds, they benefit from the income from renting.
After the end of the life of the fund, the income from the principal and investment interest of the unit buyers will be paid to them, and during the investment period, they will also benefit from the income from renting. But the rental income in Iran is insignificant compared to the income of competing markets. In the best case, the income of the rental market is around 6%; In the current situation where housing prices are at their peak, the rental income is around 3-4%.
Condition of unfreezing of susceptible properties
But the continuation of these funds, in addition to the mentioned benefits, has an important condition. Since most of the properties supported by land and building funds are office and commercial properties and multi-unit residential properties and a large part of these properties are owned by banks, institutions and institutions, an important condition for encouraging these institutions to sell these properties in The capital market and the formation of real estate funds (unfreezing the institutions’ properties), removing the benchmark cost and maintaining these properties from a “zero cost” state. This path can be facilitated by using effective tax tools such as annual tax on frozen properties.