Banks to Help Lift Iran's Housing Industry

EghtesadOnline: As home prices continue to rise, the housing sector has resorted to banks to help restore the ailing industry hit by stagflation.

News ID: ۷۴۷۸۴۳

13 July 2019

Bank Maskan, the state-run housing lender is working on a new rescue package for the housing market. The plan is due to be implemented in the fourth quarter of the current fiscal year that ends in March 2020.

The tridimensional package focuses on “real consumers” as opposed to “home dealers” who are indeed jacking up prices for years by engaging in arbitrage, dodgy deals and short selling, ISNA reported.

According to Financial Tribune, it includes facilities for “home trade by real consumers,”  “construction by real consumers” and “regulating the tenancy market”.

Data released by the Central Bank of Iran shows the average price of one square meter of a residential unit in Tehran was about 133 million rials ($1,023) in the third month of the current Iranian year (ended June 21), which shows a mind-boggling annual surge of 104.3%. Average prices reached 65 million rials ($500) last year same time.

As with prices of almost any other thing in the country, home prices surged following volatility in the foreign exchange market last year that saw the rial plunge to unprecedented lows. The added problem was rampant liquidity in the chaotic market.

Total liquidity crossed 18,828 trillion rials ($144.8 billion) by the end of the last fiscal year (ended March 20) -- up 23.1%.

Apart from these factors, analysts also ascribe the stagflation in part to the decline in construction of housing units over the past five years.

A board director of Bank Maskan says the new lending scheme envisages reducing construction costs while creating conditions to facilitate access of home buyers. It also aims to control mounting rental costs by increasing supply.

Creating Safeguards

“The bank aims to help housing-related businesses and real consumers to operate in a stable housing market. By implementing the multifaceted package, home buyers and tenants would be protected from home market volatility and builders would construct buildings at reduced costs,” Mojtaba Azizian said.

Azizian attributes housing price hikes to the soaring price of land, construction material and speculation by avaricious dealers and brokers. He claimed the new package has the potential to tackle all such factors.

Regarding high and rising land prices, the official referred to plans to allow real estate owned by the government to be used for housing projects in collaboration with the Ministry of Economy.

“In addition, builders will have access to an efficient and transparent mechanism for buying construction material in bulk.”

As for speculators, Azizian spoke of measures to curb speculative purchases and increase the number of homes available for rent.

He pointed to a mechanism in the package based on which a pre-buyer deposits a portion of the construction cost with the agent bank over the construction period and the bank will pay the builder (pre-seller) proportionate to the work in progress.

In his opinion the moves will reduce home prices by up to 30% because money will be injected into the housing projects by homebuyers and the bank, not builders dealers or speculators. The builder will thus perform only as a company in charge of executing the project without investing money, he said.