Central Bank of iran Eases HSA Home Loan Condition

“Prospective home-buyers can now take out loans on homes older than 20 years. Previously, HSA loans were only made to homes that were 15 years old or lower. This will improve the purchasing power of loan applicants, thanks to the higher number of homes older than 20 and their relatively cheaper prices,” Mohammad Hassan Moradi was also quoted as saying by Mehr News Agency.  

The bank’s official noted that the date on which the construction permit of a property was issued—and not the date on which the construction project was completed—serves as the criterion for granting loans, Mehr News Agency reported. 

HSA scheme requires applicants to make an initial deposit (400 million rials or $1,739) and wait out the one-year maturity period for credits with a ceiling of 800 million rials ($3,478), plus the depositor’s down payment, in the capital Tehran. 

In towns with a population of over 200,000, the cap on loans is at 600 million rials ($2,608). Buyers in towns with a population of under 200,000 can apply for a maximum loan of 400 million rials ($1,739).

Uncertain Outlook

Registration for new applications of HSA mortgage loans closed on June 8, 2020.

“Despite our recent correspondence with the Central Bank of Iran, the monetary policymakers have not announced a decision on whether the state’s agent bank of Iran’s housing sector is allowed to continue with the homeownership banking scheme,” Moradi said back then.  

Housing Savings Account initiative, launched on June 8, 2015, was scheduled to continue operations for five years with the aim of providing first-time homebuyers with loans, at the cheaper lending rate compared to all other loans offered by banks and lending institutions. 

When the scheme was first introduced, the loan’s interest rate was set at 14%. In February 2017, following a directive of the Money and Credit Council, they were reduced to 9.5% in general cases and 8% for home purchases made in rundown parts of cities. 

“A total of 658,000 applicants have opened accounts with Bank Maskan for HSA mortgage loans since the inception of the program. Thirty-two percent of half of those who made the initial deposit [as the other half still have to wait until they can take out the loan or have otherwise refrained from coming forth] have received the home loans while 19% withdrew from the program,” Moradi said.

Although new registration has come to an end, the older commitments of Bank Maskan to HSA depositors remain in place.

Noting that the maturity period of about 323,000 deposits has not yet reached or their holders are yet to continue with the process, the official said, “If the current trend continues [32% taking out the loan compared with 19% canceling their contracts with Bank Maskan], a total of 400,000 will have received home loans under the HSA initiative,” he was quoted as saying by the news outlet of the Ministry of Roads and Urban Development.    

HSA was in full glory in the year ending March 2018; the scheme reached the crest of its popularity both in terms of the number of registrations and the number of loans offered in that year, thanks to the stability of prices and the housing market then. 

As home prices rocketed into the stratosphere in the year leading to March 2019, applications for HSA mortgage declined by 50% in Tehran and 30% in the country compared with the preceding year. 

This downward trend continued into the fiscal 2019-20 with a further increase in home prices, the declining purchasing power of applicants and the fact that HSA now only covers a meager share of the total price of homes on sale. As a result, applications dropped by 64% in Tehran and 60% across the country year-on-year, the Persian-language daily Donya-e-Eqtesad reported. 

Statistics show that the average deposit period, for which first-time homebuyers waited to receive the loan was around 18 months over the past five years. So far, one out of five people who registered for the loan has received it. 

It is noteworthy that the one-year maturity of some savings has not yet been redeemed. However, the main reason behind the drop in the popularity of HSA lies in the fact that investing in this program no longer makes financial sense. Since the year ending March 2016 to the year ending March 2020, the average home prices have increased 3.2-fold in Tehran and twofold in the country while the amount of loan has remained unchanged. 

HSA is said to be mostly a self-sustaining fund since all the resources it absorbs are redirected to boost the financial strength of Bank Maskan for it to be able to support prospective homebuyers through cheap facilities. In addition, a part of its resources are provided via repayment of loans granted under another government-backed scheme, i.e. Mehr Housing Plan. 

The Mehr plan was a large-scale construction program initiated in 2007 by the administration of former president, Mahmoud Ahmadinejad, to provide two million low-income people with housing units through free land and cheap credits. It was scheduled to be concluded in five years.

The multibillion dollar housing plan for low-income families did deliver housing to many deserving people, but it had more than its share of controversy. As if the multiple problems were not enough, a large number of people who made advance payments have yet to receive the key to their homes even after 12 years into the project. 

There is speculation that the current housing officials prefer to redirect Mehr Housing resources [from repayment of loans] into their own version of affordable housing project, known as National Housing Initiative, instead of investing in HSA mortgage initiative. 

Under the new housing initiative, the government is committed to supply a total of 400,000 affordable homes to people.