Housing Budget Gets Mixed Parliamentary Reviews as Recession Fears Resurface

EghtesadOnline: The housing sector's share in the Iranian annual budget has garnered mixed reactions from members of the Majlis Civil Affairs Committee.

News ID: ۷۳۹۰۳۴

04 January 2017

While some believe the share of the housing sector in 2016-17 will be enough if it is realized in full, others warn about gloomier days for the already beleaguered sector.

A number of committee members spoke to ICANA, the official news service of the parliament, to offer views on the polarizing subject. In total, 8.14 trillion rials ($206.9 million) have been considered for the housing sector, which constitute less than 10% of the total budget allocated to the  Ministry of Roads and Urban Development.

The committee's spokesman criticized President Hassan Rouhani's neglect of the housing sector, Financial Tribune reported.

"If the government's proposed budget regarding the housing sector is approved unchanged, the sector will undoubtedly face worse conditions during the next year," Sadif Badri added.

Noting that the housing sector has received the least amount of capital in the annual budget, he added that the government needs to pay more attention to it for energizing the sector.

"Unfortunately, a quick look at the annual budget of 2017 shows no positive aspects about the housing sector," he said.

Another member of the committee called the budget share "meager", saying that with this share, the oft-promised boom in the beleaguered sector would be unimaginable.

"If [more] funds are not injected into the housing sector, it would find itself plagued by a variety of problems and will not be able to exit recession," Majid Kianpour added, stressing that it is vital for the housing sector's share in the annual budget to increase.

The lawmaker added that the Majlis Civil Affairs Committee will push to improve the housing share in the budget.

On the other hand, Seyyed Ahsan Alavi, a committee member, said if the funds that have currently been considered for the housing sector are fully allocated, the sector will "experience a tangible growth".

He believes the government will witness a recovery in the housing sector during the next fiscal year (starting March 21), but this will also entail an increase in home prices.

"Inciting demand in the housing sector will be made possible by providing mortgages and allocating subsidies," he said. "The exit of the housing sector from recession could have a 20-25% positive effect on the economy and that is why the government must focus its energies on this goal."

Fund Allocation in Disarray

Another member of the parliamentary committee said the share of the housing sector in the budget is "sufficient for our needs", as his main concern lies elsewhere.

"A significant part of the budget for the current fiscal year has yet to be allocated and this concern is also valid for next year," Mohammad Mehdi Eftekhari added.

The MP stressed that under the current circumstances, policymaking carries more weight than fund allocation.

"When the government deems the housing sector's share in the annual budget to be enough but is unable to map out a clear blueprint for the sector and outline a plan to allocate the funds, then there is cause for worry," he said.

This comes as the housing sector has not had a good start in winter.

Hesam Oqbaei, the head of Tehran Association of Realtors, announced that the number of residential deals nationwide halved during the early days of winter.

"In the first 11 days of the current month [21-31 December], 18,149 home sales were registered in the country," Oqbaei was quoted as saying by Banker.ir. "That is while the figure for the corresponding period last year stood at 34,000, which shows an almost 50% decrease. It can be said that we have experienced a return to recession."

The official notes that this decline has taken place while it was thought that a growth in home sales in the first eight months of the year would extend to the whole country.

Forex Market Impact

While the recent rise in currency rates in the Iranian forex market will not dramatically stir demand in the housing market, it will surely not prove inconsequential, the Comprehensive Housing Plan's deputy for research said.

"Even though soaring foreign exchange rate hikes will not create a 200% rise in demand in the housing market, it will not be without effect and its consequences will become evident in the first half of next year," Fardin Yazdani was also quoted as saying by ILNA.

Major foreign currencies, e specially the US dollar, gained significantly against the rial in recent weeks before losing some ground later.

President Hassan Rouhani sought to reassure Iranians on Sunday that the government would work to protect market stability after the country's currency fell to a record low last week.

"I am optimistic about the country's economic situation and ... I want to reassure our people that foreign currencies will not keep on going up," Rouhani said in a live interview with state television.

Unveiled two years ago, the Comprehensive Housing Plan drawn up by the government seeks to provide all low-income groups with housing by 2025. Acting as a roadmap for the governments, it outlines the obligations of the governments in providing housing for different social classes.

Asked whether the current increase in currency rates has the potential to drive up home prices significantly, Yazdani reassured that "it will not single-handedly cause house prices to skyrocket , but its influence cannot be ruled out."

"Either way, the housing sector is now facing an accumulation of demand as a result of years of stagnancy and now with the rise in money supply, the cash flow could end up in the housing market if not directed to suitable channels," he added.

Noting that consumers and investors exert influence on the housing market, the official said there is currently enough capital in the market, but is blocked in various sectors or flowing toward the gold and currency markets.

"Therefore, as long as stagnancy reigns over the economy, a sudden increase in prices is not expected," Yazdani said.