Iran: Demand for Rental Housing to Increase Prices in Summer

EghtesadOnline: With summer comes new demand for rental housing in Iran.

News ID: ۷۴۷۷۸۲

07 July 2019

Although the pace of price hike in the rental market was slower than that of housing purchase prices, experts expect landlords to increase rents this summer to make up for rising inflation and costs resulting from last year's devaluation of local currency.

“Unlike most developed countries, the rate of living in owned residential properties in Iran is higher than that of rental properties,” Fardin Yazdani, housing expert and the official in charge of the Comprehensive Housing Plan of the Ministry of Roads and Urban Development, wrote in the Persian daily Donya-e-Eqtesad.

“Buying a home is a more popular economic endeavor among Iranians due to a number of economic, cultural and social reasons. However, over the past decades, the share of renting has followed an uptrend.”

According the Statistical Center of Iran, non-owner-occupied property rates jumped from 15% in the fiscal 1976-77 to 31% in the fiscal 2016-17, Financial Tribune reported.

“People who see their residential properties as an asset to protect their savings, or those who buy a home with the intention of engaging in speculative business constitute the large segment of landlords in Iran,” Yazdani said.

“So it is typical of them to adjust rents to conform to prevailing market conditions, changes in purchasing power, inflation and home prices. All these factors are founded on scientific theories of economics. In other words, home prices, inflation rate and the profitability of other markets affect rent levels.”

Noting that other variables, including the supply of residential units, psychological factors and market unrest, as well as taxation rules, impact rents, Yazdani said, “Normally, rent levels decrease with the rise in rental homes. It is hard to make a definitive judgment about lack of rental homes in Iran, as housing construction has dropped in recent years while in the late 2000s, the country was experiencing an oversupply of homes [thanks in part to the controversial Mehr Housing Project]. But it’s clear that the country has a shortage of small-sized homes.”

The Mehr Housing Project is a large-scale construction program initiated by the government in 2007 to provide two million low-income people with housing units through free land and cheap credits, but the nationwide scheme slowed down due to lack of funding.

The project has also been blamed for contributing to inflation. As the housing project lingers, many of the complete units remain unoccupied because of the remote location of those buildings with poor access to public services and low quality of building materials.

Yazdani believes that the government can implement a short-term plan by granting low-interest loans to the less-privileged to help them pay their collateral for rents.

“Offering unwanted Mehr Housing units or paying subsidies to renters would also be a great support for low-income households. The database of the Ministry of Cooperatives, Labor and Social Welfare, Imam Khomeini Relief Foundation and State Welfare Organization would be useful to the government to identify the real target group of such facilities. Build-to-rent projects sponsored by the government and implemented on state-owned lands are another method that can put the rental housing market in order,” he concluded.

A Review of Rents, Home Prices, Inflation

According to the Statistical Center of Iran, the average monthly home rents plus 3% collateral legally paid to rent 1 square meter of residential floor area increased by 19.2% in Iran during last year's fourth quarter (December 22, 2018-March 20) compared with the same period of the year before while they grew by 1.8% compared with the third quarter of last year.

The minimum price of each square meter of residential floor area rented in Iran stood at 1,818 rials (1.3 cents) with the maximum being registered at 1.71 million ($12.7) bringing the average to 111,064 rials (82.5 cents) per month.

Compared with the fourth quarter of the year before, last year’s fourth quarter rent deals declined by 15.5% whereas they fell by 13.3% compared with last year’s Q3.

SCI reported the average area of total rent deals at 98 square meters and put the average age of rental homes at 13 years.

In the capital city, Tehran, rent prices increased by 21.7% during last year's Q4 compared with the Q4 of the year before while they grew by 1.9% compared with the third quarter of last year.

The minimum price of each square meter of residential floor area rented in Tehran stood at 28,000 rials (18 cents) with the maximum being registered at 1.71 million ($11.4) bringing the average to 343,067 rials ($2.28) per month.

Compared with the fourth quarter of the year before, last year’s fourth quarter rent deals decreased by 18.8% whereas they fell by 10.3% compared with last year’s Q3.

SCI reported the average area of total rent deals at 78 square meters and put the average age of rental homes at 14 years.

Consumer inflation in Iran registered a year-on-year increase of 50.4% in the Iranian month Khordad (May 22-June 21) compared with the similar month of last year, SCI reported.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 174.9 in Khordad, indicating a 0.8% rise compared with the previous month.

The average goods and services Consumer Price Index in the 12-month period ending June 21 increased by 37.6% compared with last year’s corresponding period.

According to the Central Bank of Iran, the average price of each square meter of a residential unit in Tehran stood at about 132.99 million rials ($1,023) during the month under review, showing an annual surge of 104.3%, as average prices were registered at 65.1 million rials ($500) in last year’s corresponding month.

Home prices in the capital grew by 4.9% compared to about 126.72 million rials ($975) in the second month of the current year.

According to CBI, the price of rented residential units in Tehran and across all urban areas of Iran increased by 23% and 20.7% respectively during the third month of the current year compared with the similar period of last year.