Housing Investment in Iran Loses Luster

EghtesadOnline: Economist Pouya Jabal Ameli believes that the real-estate market won’t stand upon a better footing in the coming years than it did over the past half-century.

News ID: ۷۴۸۷۲۴

15 October 2019

The country’s real estate used to bring higher returns compared with other investment markets over the past decades, he says.

“The total return index of real-estate market has been greater than that of other markets such as gold coin in the long run. But there’s this feeling that the decades-long economic expansion of this market is in for a correction,” he was quoted as saying by Hibna.

Jabal Ameli points out to two factors that will impact housing demand in the long run, according to Financial Tribune.

“The rate of population growth in Iran has now reached its record-low over the past 50 years. In the late 1960s, the rate of population growth averaged at around 3% annually; it even hit its all-time high of 4% in the year ending March 1985,” he said.

“Since then, it has been on a downward trend that reached the current growth rate of 1.1% annually. In other words, Iran’s population pyramid, which illustrates the age and gender structure of the country, always showed greater density among newborns compared with other age groups. The population density has now shifted to the 30-40 age group."

Noting that population growth will surely affect home prices in the long run, the economist said, “Buoyant demands for housing over decades stemmed from population growth and the fact that people were reaching the age of starting a family. Such a trend will reverse in the next decade. Therefore, you cannot expect the real-estate market to yield real returns as it did before.”

Jabal Ameli said the second factor that will impact the housing market is the decline in the country’s oil revenues.

“This is known as a Dutch disease: the shrinking of tradable-goods sector in response to a large influx of income [from oil exports] and in return the booming of non-tradable goods such as land and buildings. Iran’s economy has typically been hit by the Dutch disease, thanks to the ample volume of petrodollars,” he said.

“Investors in property could achieve substantial and quick returns, as Iran’s foreign currency revenues increased over the years. The reimposition of sanctions on Iran’s energy sector since 2011 has helped the country rid itself of Dutch disease and its impact on housing prices. The latter could turn out to be a temporary factor, as long as sanctions remain.”

Tehran Home Prices, Sales Dip for 2nd Month in Row

The number of property deals, together with home prices in Tehran, decreased for the second consecutive month, in the sixth month of the current Iranian year that ended on Sept. 22 compared with the previous month, according to the Central Bank of Iran's latest report.

Data published by CBI on its website indicate that the average price of each square meter of a residential unit in Tehran stood at 126.67 million rials ($1,116) during the month under review, showing a surge of 56.5% over last year’s same month when average prices reached 80.95 million rials ($713).

Home prices in the capital city declined by 2.8% compared to 130.25 million rials ($1,147) in the fifth month of the current year.

A total of 2,787 homes were sold in the capital during the sixth month, signaling a year-on-year decline of 73% compared with 10,335 deals in the corresponding month of last year.

The number of property deals fell by 15.3% compared with the preceding Iranian month.

Residential units with an average price range of 75 million rials ($660) to 90 million rials ($792) per square meter were in high demand in Tehran during the fiscal month under review, as it grabbed an 11.8% share of all deals.

From the total number of deals, 56.1% belonged to homes cheaper than the average per-square meter price of the city (126.7 million rials or $1,116).

Residential units with a floor area of 50-60 square meters registered the highest number of deals, grabbing a 15.7% share of total deals.

CBI data further show that homes in Tehran worth between 3 billion rials ($26,431) and 4.5 billion rials ($39,647) were the most popular with a 15.6% share of total deals.