Housing Slowdown Eases Consumer Inflation in Iran

EghtesadOnline: The slowdown in the monthly rise in housing price levels is believed to be behind the disinflation registered for the Iranian month ending Aug. 22.

News ID: ۷۴۸۲۷۲

27 August 2019

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 180.8 in the fifth month of the Iranian year (July 23-Aug. 22), indicating a month-on-month rise of 0.6% which is a relatively small monthly increase (in fact, the lowest registered in the past 17 months) compared with inflation in the past few months, according to a report by Donya-e Eqtesad.

The consumer inflation registered a year-on-year increase of 41.6% in the month ending Aug. 22 compared with the similar month of last year, the Statistical Center of Iran reported.

Year-on-year inflation rate of the month ending July 22 was 48%, suggesting that inflation decreased by 6.4 percentage point last month YOY, which is an unprecedented decline in a decade, according to Financial Tribune.

The goods and services Consumer Price Index in the 12-month period ending Aug. 22 increased by 42.2% compared with last year’s corresponding period which is the highest annual inflation rate in a decade. SCI had put the inflation rate for the preceding Iranian month, which ended on July 22, at 40.4%.

With a coefficient of 31.12%, the disinflation in housing sector is believed to have eased the overall monthly CPI of the month ending Aug. 22.

The moving season usually peaks in the first month of summer (June 22-July 22), leading to high inflation rates for housing and tenancy sectors, but their inflation rates typically fall in the following month (July 23-Aug. 22), Hibna reported.

CPI measured for the “housing” sector stood at 151.1 in the same month, indicating a 1.4% rise compared with the previous month. In the fiscal month ending July 22, the housing index posted a rise of 4.1% month-on-month.

The “housing” index registered a year-on-year increase of 23% in the fiscal month ending Aug. 22 compared with the similar month of last year.  Year-on-year inflation rate of the housing sector was 23.6% in the month ending July 22.

The CPI of “housing” subgroup in the 12-month period ending Aug. 22 increased by 23.4% compared with last year’s corresponding period, whereas the annual inflation registered for the subgroup was 22.9% during the month ending July 22.

The consumer price index for “housing” registered a year-on-year increase of 23.2% for urban areas compared with the similar month of last year.

SCI put 12-month inflation for the “housing” sector of urban areas with the coefficient of 34.1 in the month ending Aug. 22 at 23.9%.

The overall CPI of “housing” reached 151.8 for urban households, indicating an increase of 1.4% compared with the previous month. This is while the overall CPI of urban housing sector in the fiscal month ending July 22 stood at 149.8, indicating a month-on-month inflation of 4.2%.

The CPI for “housing” registered a year-on-year increase of 19.4% in the month ending Aug. 22 for rural areas compared with the similar month of last year.

SCI put 12-month inflation for the rural housing sector with a coefficient of 14.47 in the month ending Aug. 22 at 17.7%.

The overall CPI for “housing” reached 141.5 for rural households, indicating an increase of 1.6% compared with the previous month. This comes as the overall CPI of rural housing sector in the fiscal month ending July 22 stood at 139.3, indicating a month-on-month inflation of 3.1%.

The CPI calculated for “tenancy” sector stood at 151 in the Iranian month ending Aug. 22, indicating a 1.4% rise compared with the previous month. In the fiscal month ending July 22, the tenancy index had posted a month-on-month rise of 4.1%.

The “tenancy” consumer price index registered a year-on-year increase of 22.8% in the month ending Aug. 22 compared with the similar month of last year.

The CPI of “tenancy” subgroup with a coefficient of 30.72 in the 12-month period ending Aug. 22 increased by 23.4% compared with last year’s corresponding period, the statistical center said.

The “tenancy” CPI registered a year-on-year increase of 23.1% for urban areas and 19.1% for rural areas compared with the similar month of last year.

SCI put urban and rural 12-month inflation for “tenancy” sector in the month ending Aug. 22 at 23.8% and 17.6%.

The overall CPI of “tenancy” for urban households with a coefficient of 33.73 reached 151.7 and that of rural areas with a coefficient of 13.87 stood at 141.3, indicating an increase of 1.4% for urban and 1.5% for rural areas compared with the previous month.

Inflationary Recession

Iran's housing market is bracing for inflationary recession amid a widening home supply deficit, according to Fardin Yazdani, the Comprehensive Housing Plan’s deputy for research.

Referring to the rise in home prices alongside a decline in the number of home deals, Yazdani said the main reason for this is that the housing sector has failed to boost production.

"In other words, despite strong demand in the housing market over the past year, the supply side has failed to catch up," he was quoted as saying by the news service of the Ministry of Roads and Urban Development.

The Statistical Center of Iran's latest report shows the average price of each square meter of residential floor area surged by 59.8% during last year’s Q4 on a year-on-year basis. Compared with the previous quarter, prices indicated a growth of 11.5%.

The minimum price of each square meter of residential floor area across urban areas during last year's Q4 stood at 864,000 rials ($7.4) with the maximum price registered at about 570.98 million rials ($4,900). The average price was about 29.26 million rials ($251).

In terms of the number of deals for residential floor areas, the last year’s Q4 saw a decline of 16.6% compared with the Q4 of the year before. Against the Q3 of last year, the number of such deals registered an increase of 10.3%.

SCI put the average dealt floor area at 110 square meters while putting the average age of residential units at 11 years.

Gov't to Launch Construction of 150,000 Homes This Week

President Hassan Rouhani is scheduled to launch the construction project of 150,000 homes of the so-called “National Initiative to Build and Deliver Homes” via video conferencing this week. Nearly 20,000 of these residential units will be constructed in new satellite cities, including 7,134 in Fooladshahr in Isfahan Province, 4,448 in Parand in Tehran Province, 2,762 in Golbahar in Khorasan Razavi, 1,547 in Sahand in East Azarbaijan Province, 1,497 in Sadra in Fars Province, 800 in Amirkabir in Markazi Province, 520 in Hashtgerd in Alborz Province and 150 in Pardis in Tehran.

Out of a total of 400,000 homes planned to be constructed as per the Roads and Urban Development Ministry’s new scheme, New Towns Development Company will build 200,000, the Urban Development and Renovation Company 100,000 and the Housing Foundation of the Islamic Republic of Iran will construct the remaining 100,000 residential units over three years, Fars News Agency reported.

With the planned construction of 13 new towns by New Towns Development Company, the number of Iran's satellite towns will reach 30.

Currently, 17 satellite towns have been created in 11 Iranian provinces.

The optimal population of the existing satellite towns is estimated to be around 3.8 million residents. However, almost 80% of their capacity currently remains unused.

The estimated population of the first-generation residents of new towns was put at 280,000 in March 2006-7, 420,000 in March 2011-12 and 776,000 in 2016-17.

New towns have experienced an 8.8% population growth rate between the fiscal 2006-7 and 2011-12, and 12.6% between the fiscal 2011-12 and 2016-17.

Their population is estimated to increase to 1.3 million in the fiscal 2021-22 and over 2.5 million in the fiscal 2026-27.