Dubai: The founders of a global real estate security exchange, Saudi Arabian IREX Group and Canadian egX World, believe they would bring liquidity and transparency to the market.
"Willing buyers and sellers will be able to trade in one harmonised environment, which will mitigate the misuse of investment in real estate. At the moment, real estate is the right place for money laundering, it's the truth," said Safar Al Harthi, Executive Chairman of IREX Group.
Whilst an investor in shares of a project listed on the exchange can rest assured that it will have passed the exchange's test, there's no guarantee that all developments will bring money.
"We can't guarantee a project won't fail, but there's the security of a regulated environment and legal rights. Shares will go up and down but at least the real estate market won't be dependent on the stock exchange fluctuations any more," said Leo Chamberland, President and CEO of IREX Group.
Projects listed on the exchange will be extensively vetted before listing and constantly monitored to maximise transparency. A project would have to disclose annual reports and provide reports by three legally independent consultants on a quarterly basis.
For projects under construction a live feed of activity on the site with a barometer measuring progress by year, month and day would be available on the exchange's site.
"If a project slows down the developer has to disclose and explain why. This looks picky maybe but it's what investors need and will enhance transparency," Al Harthi added.
Developers or owners could list land, real estate projects of all sizes and in all sectors in the planning, ready assets and mortgage pools, traded as securities ranging from common shares, debt securities to Real Estate Investment Trusts (REITs) and Sharia compliant products.
"The mortgage pool is particularly interesting. A lack of transparency and disclosure in the US and then across the world, as loans were traded over value, resulted in the global crisis. If we can open that door to transparency, investor confidence will come back to the open market and liquidity comes from that participation," said Chamberland.
Land banking is another huge business, up to now reserved for the wealthy. Owning shares in real estate allows those who want to but can't afford a whole asset to participate," he added.
"Via shares, anyone can buy a piece of promising land and there are many out there who want a piece of the real estate market but don't want the headache of owning property."
With banks still reticent to lend, once would expect developers to be only too eager to list and raise finance via the exchange, but will they be willing to disclose all details of their project?
Chamberland believes they would, comparing a developer with a project to an owner of a fast car offered a new road he can't drive as fast on as he would like to."
How to buy and sell
Listing
If a project is to be listed, an application must be made. Following an initial security check, the project will then undergo an IPO (initial public offering) and, once listed, trading will begin. The development of the project then commences. All details are disclosed throughout the process and once the project is settled, shares tend to go up and investors get paid.
Trading
Just like the regular stock exchange, investors can buy shares of a real estate project or ready assets and dispose of them when necessary.
