Expert Criticize Gov’t Intervention in Tenancy Market

EghtesadOnline: A housing expert believes the government’s intervention in the lease market would cause confusion, as it can increase the share of unregistered, unofficial deals and price rises in the long term.

News ID: ۷۵۰۳۵۹

01 July 2020

“Rental rates depend heavily on the law of supply and demand. The government intervention in setting a ceiling on rent increases would lead to a decline in supply, surge in demand and eventually rent increases,” Mehdi Soltan-Mohammadi added.

His comments followed the Ministry of Roads and Urban Development’s announcement of new guidelines on Monday to protect residential tenants affected by Covid-19.

“Tenancy agreements signed as of June 29 may not increase rents by more than 25% in Tehran, 20% in large cities with a population over one million, namely Mashhad, Isfahan, Tabriz, Ahvaz, Qom, Shiraz and Karaj, and 15% in other Iranian cities,” Deputy Roads and Urban Development Minister Mahmoud Mahmoudzadeh said.

The new guidelines approved by the National Taskforce to Fight Coronavirus also suspends landlords' ability to forfeit a lease during the time the country is battling the health crisis, plus three months after the Health Ministry declares the end of the outbreak.

“There are exceptions to the rule,” the deputy minister said. “The tenant must have delivered on their commitments during their current tenancy term; in other words, they should not be recognized as a tenant in arrears by the judiciary. Those who have caused financial losses for the landlord won’t be entitled to the new facility.

Mahmoudzadeh said once the landlord legally sells their property during the lease period, the tenant must vacate within two months.

“The final exception is when the tenant refuses to accept the aforementioned legal rent increase. If the landlord asks for a higher rent [than what was approved], the tenant can fail to pay the rent without facing an eviction notice.”

Asked if the new pronouncement is legally enforceable, Mahmoudzadeh said, “Not a single judicial authority is allowed to order the tenant to vacate the premises as per the new legislation. This is a decision made by the Supreme National Security Council of the Islamic Republic of Iran and it is beyond the jurisdiction of the Iranian Parliament.”

Noting that it does not violate either the rights of the landlords or those of tenants, the deputy minister said it will ease the pressure in rental market, particularly in large cities.

He stressed that all residential real-estate deals, including home sale, rental and lease agreements, are required to be registered at the state-run Tenement Management Information System operated by the Ministry of Roads and Urban Development and obtain the tracking code as of June 29, IRNA reported.

In early May, the taskforce approved a self-executing two-month extension of rental agreements with the termination date falling between February 20 and May 20 to control the spread of coronavirus and help tenants battling job and income losses during the pandemic.

“Changes in rents over the past 10 years have been in line with the general price level of goods and services,” Soltan-Mohammadi was quoted as saying by Fars News Agency.

“The most effective strategy to address the rental market’s issues by the government is to control inflation. Imagine how difficult it is for the government to control automotive and gold coin markets that are completely monopolized by it. How does it intend to oversee a market whose supply and demand are fully beyond its control?”

Latest data published by Central Bank of Iran on its website show that during the third month of the current fiscal year (May 21-June 20), the price of rented residential properties in Tehran and across urban areas increased by 27.6% and 30.7% respectively compared with the similar month of last year.

Significant Share of Households Living Off Rental Income

The head of Statistical Center of Iran said rental income accounted for 37.5% of the catch-all category entitled “miscellaneous sources of income” in the last fiscal year (March 2019-20).

Javad Hosseinzadeh added that sources of generating income for urban households in the last Iranian year were “paid-employment jobs” (32.5%), “self-employment jobs in farming or nonfarm payroll employment” (16.1%) and “miscellaneous sources of income” (51.4%).

The "miscellaneous sources of income" itself comprised of "rental income" (37.5%), "retirement income" (31.6%), "subsidies" (5.8%) and "other sources" (25.1%).

For rural households, sources of generating income were "paid-employment jobs" (30.7%), "self-employment jobs in farming or nonfarm payroll employment" (33.5%) and "miscellaneous sources of income" (35.8%).

The "miscellaneous sources of income" for households residing in rural areas comprised of "rental income" (27.3%), "retirement income" (20.1%), "subsidies" (17.7%) and "other sources" (34.8%).