Forex Rally’s Impact on Housing Sector Limited

EghtesadOnline: A housing official has ruled out any immediate impact of the ongoing rally in the foreign exchange market on home prices but says that in the medium term, a weaker rial would make the housing market bullish.

News ID: ۷۴۴۸۵۹

06 February 2018

According to Ali Chegini, the head of the Planning and Housing Economy Office at the Ministry of Roads and Housing Development, the rise in foreign exchange does not directly influence the housing market because the share of forex payments in this sector is meager.

“However, foreign currency is considered a capital good in the economy and naturally when its rate climbs, there will be a ripple effect on other goods as well, including the  housing sector,” he said.

The currency market is in the midst of a rally and efforts by the Central Bank of Iran and the administration have done little to stop that, according to Financial Tribune.

As with previous years, foreign exchange rates surged in December 2017, which also coincided with the end of the third quarter of the Iranian year when seasonal demand increases as Iranians travel abroad. However, this year’s rally has been more intense and lasted longer.

The rial dropped to around 46,500 against the dollar in the open market in late January from 37,700 in mid-2017. This was particularly shocking, considering the pledge of President Hassan Rouhani’s administration to keep the rial strong and stable against other currencies.

Rial continued to drop to record lows against the US dollar on Sunday, ending a short spell of stability that held for only a few days after the government assured the public that volatility in the foreign exchange market was temporary.

On Monday, a day before President Rouhani is scheduled to hold a press conference, it was slightly down but bullish at 47,400, Tehran Gold and Jewelry Union’s website reported.

CBI Governor Valiollah Seif has repeatedly warned investors speculating on the fall of the rial that they are heading for losses because his bank could control the foreign exchange market and the currency is likely to rebound in the next couple of months.

These assurances, however, have had little impact in lowering the market heat.

At one stage, the central bank engineered a gradual depreciation of the rial to compensate for Iran’s high inflation rate and to help make exports more competitive. But it has said that any volatility would be a redline for the bank.

Chegini, an oft-quoted expert on the housing sector, deemed it far-fetched that the housing market would go through the enormous shock that it did in 2011-12 “because at that time the forex volatility was much more intense”.

In 2012, the rial had lost 70% of its value in a short span of time.

Iran’s housing market, which accounts for over 5% of the country’s GDP, had been mired in recession for a long time but recent upbeat home sales data indicate that the sector is coming out of its slump.