Iranian Housing Market in Recovery Mode

EghtesadOnline: The housing sector has entered its "first phase of recovery" and is on the threshold of a pre-boom trajectory that should eventually lead to an upturn, according to a leading real estate expert.

News ID: ۷۳۶۳۱۸

29 August 2016

"A relative upsurge has started to take shape in the property market, signaling that we are in the first phase of a recovery," Hesam Oqbaei, the head of Tehran Association of Realtors was quoted as saying by banker.ir

The realtor verified his claims with data, saying during the fifth month of the fiscal Iranian year to August 21, the number of home sales in Tehran posted a 13.3% rise compared to the prior month and 17.2% on a year-on-year basis.

"In the fifth month of the current year, 18,699 real estate deals were sealed in Tehran while in the previous month and the same month last year, the number of deals were 16,499 and 15,946 respectively."

Renting has also increased during the period: 22,882 houses were rented out in Tehran in the fifth month of the year compared with the 21,838 and 21,592 rented homes during the previous month and the same month last year, registering a 4.7% and 5.9% growth.

Two days ago, the Central Bank of Iran released its own report on the housing market saying that 17,032 houses were sold in Tehran during the period marking a year-on-year growth of 30.1%. The average price of houses in the capital was said by the central bank to stand at 42.7 million rials ($1,370) per m2, indicating a 7.6% and 1.2% growth compared with the same period of last year and the previous month, respectively, reports Financial Tribune.

CBI’s report also shows that the total number of home sales in Tehran reached 68,912 during March 20–August 20, up 15.5% compared with the same period in 2015.

Any change in the housing sector –which has become a sore point for the economy–produces a ripple effect in other sectors both on a macro and microeconomic level. Needless to say, the construction sector is one of the biggest and most important sectors of the economy that in addition to its basic function of providing households with a roof over their head, accounts for a significant share of the labor market.

"Tehran is a barometer for the whole country and with a hike in the capital's real estate deals, it can be said with some degree of certainty that we will be witnessing the same trend across the country," Oqabaei said.

Prices in Check

Meanwhile, a deputy minister of roads and urban development confirmed that a relative boom had occurred in the housing sector, saying that with inflation under control, house prices would not take a leap.

"High interest rates coupled with a variety of other reasons such as the decline in oil revenues and the sanctions made the country vulnerable to recession," Hamed Mazaherian told ILNA.

"But with the cut in deposit and lending rates and lower cost of borrowing, businesses were again incentivized to rekindle their activities in various sectors of the economy, including the housing sector."

Given that the lending rate was 33% when President Hassan Rouhani's government took office, current lending rates have almost been halved (18%), so questions arise as to why this did not create significant momentum, helping the country free itself of recession. On this issue the official said interest rates were not the only culprits behind the economic downturn and that a grab bag of issues should be taken into consideration.

"However with the increase in oil exports and the relative easing of restrictions over the past few months as a result of the implementation of the nuclear accord, we have witnessed some progress in certain sectors such as housing."

About the potential rise of housing prices when the sector starts to pick up, Mazaherian noted that the most important factor influencing housing prices is  headline inflation. "A mid-term and long-term increase in house prices is proportional to the inflation rate," he said. "With increase in inflation, construction costs also rise and builders expect higher interest rates."

"This will in turn lead to a rise in home prices. So while inflation is tamed, a significant factor contributing to rising housing prices has been eliminated, so it can be said that we will not be witnessing another price hike in the coming years," the deputy minister said.